According to the U.S. Department of Veterans Affairs, 2 million of the 21.9 million veterans in the U.S. are women. Pair that statistic with recent findings from the National Association of Realtors ranking single women second-highest among home buyers in the U.S., and there’s a good chance some of your clients will need information on VA loans.
Of course, VA loans are available to all veterans who qualify. A recent Bankrate.com article by mortgage and real estate expert Polyana da Costa provides 5 things to know about getting a VA loan that real estate agents and mortgage brokers can pass along.
1. Eligibility — Those who qualify for a VA mortgage include veterans, those on active duty, reservists and spouses of military members who died while on active duty or as a result of a service-connected disability. Active-duty members need about 6 months of service, while reservists and National Guard members must wait 6 years to apply unless they are called to active duty before that, in which case they are eligible after 181 days of service. Eligibility kicks in after 90 days of service for reservists, members of the National Guard and active-duty members during war periods.
Applicants will need a certificate of eligibility, which can be submitted online. The form isn’t needed to begin the mortgage process, however, according to Chris Birk, director of education for Veterans United Home Loans.
“Lenders in many cases can get this document for borrowers during the pre-approval phase,” he said in the article.
2. Advantages — VA loans don’t require a down payment, so borrowers can apply sooner than later. And unlike Federal Housing Administration and conventional loans with less than a 20% down payment, VA loans don’t require mortgage insurance, resulting in money saved each month.
“For instance, a borrower who makes a 3.5% down payment on a $200,000 FHA-insured mortgage pays $142 a month for mortgage insurance alone,” da Costa wrote.
3. Fees — VA loans have a one-time funding fee that varies depending on the amount of the down payment and the type of veteran. Active duty armed forces members who are first-time VA loan borrowers would pay a fee of 2.15% of the loan amount with no down payment, and 1.25% of the loan amount with a 10% down payment. Reservists and National Guard members normally pay about .25% more in fees than active-duty members. Veterans who seek a VA loan for the 2nd time and without a down payment would pay 3.3% of the total loan amount. The fee is waived for those veterans receiving disability compensation, according to Michael Frueh, loan guaranty director for the Department of Veterans Affairs.
4. Underwriting requirements — VA loan requirements are different than those of conventional loans. For example, they are available only to finance a primary home and cannot be used to purchase or refinance vacation or investment homes. The limit on VA loans are set by county and range from $417,000 in most parts of the country up to $625,500 in high-cost areas of the contiguous United States and Alaska, with limits even higher in four counties in Hawaii.
The VA does not directly lend funds to borrowers. Loans are made through private lenders and are partially guaranteed by the VA, as long as all guidelines are met. Although the VA does not have a minimum credit score requirement, lenders generally will use their own internal requirements with most requiring a credit score of 620 or higher, according to veteran Grant Moon, president of VA Loan Captain Inc., a loan referral company.
“There are players that would go lower, but they would probably charge a higher interest rate,” he said in the article.
Much the same as conventional loans, VA borrowers must show sufficient income to repay the loan and should have minimal debt, but the guidelines are typically less stringent. For example, similar to FHA guidelines, VA guidelines allow veterans to use their home-loan benefits 12 to 24 months after bankruptcy or foreclosure.
“We look at the whole credit picture, what was the reason for the credit bankruptcy and where the borrower is now,” VA assistant director of loan policy John Bell said in the article.
5. In case of default — VA loan borrowers who can’t make mortgage payments can seek help from the VA, who will negotiate with the lender on the borrower’s behalf regarding repayment plans, loan modifications and other alternatives to foreclosure, according to Bell.
“We have dedicated staff nationwide committed to helping veterans who are experiencing financial difficulty,” he said in the article.