When the U.S. Government signed the Blue Water Navy Vietnam Veterans Act into law in 2019, the Department of Veteran Affairs (VA) lifted previously applicable lending caps. This ensures that eligible borrowers may apply for VA loans in all regions, irrespective of the loan amount. Depending on your circumstances, getting a no down payment VA loan might work well for you. However, it is best that you learn how these loans work before making a decision.
While private lenders provide VA loans, they are backed by the Department of Veteran Affairs. This is its way of helping active duty service members, veterans, and survivors become homeowners. Created in 1944 as part of the Servicemen’s Readjustment Act or the GI Bill of Rights, VA loans have been popular since.
Since VA loans are government-backed – meaning that the government will repay all or part of your loan in case you default or face foreclosure – they are relatively easier to attain when compared to conventional loans. VA loans require no down payment, but you need to pay a loan funding fee. According to recent data, the Department of Veteran Affairs backed over 1,246,000 home purchase and refinance loans in 2020.
Getting a VA loan comes with various benefits.
If you are on active duty or have served in the U.S. Military, you might qualify for a VA loan. The Department extends this benefit to members of the Army, Air Force, Navy, Coast Guard, Marine Corps, and National Guards. To apply for a VA loan, you need to get a Certificate of Eligibility from the VA. You are required to use the home you purchase as your primary residence.
Eligibility requires that you meet the minimum active-duty service requirement depending on when you served. For instance, if you are a veteran who served on active duty for 90 days during wartime, or over 180 consecutive days during peacetime, you are eligible to receive the COE. If you enlisted any time after September 7, 1980, you need to have served at least two years. It is also important that you have not been discharged dishonorably. National Guards needs to have served for at least six years to qualify.
Surviving spouses of service members who were prisoners of war or went missing in action might qualify, provided they do not remarry. Spouses of veterans who passed away from service-related reasons while in active duty, and who remarried after December 16, 2003, or after turning 57 years old might also be eligible.
Foreclosure and bankruptcy don’t have a long-lasting effect on your ability to get a VA loan. For instance, you may apply for a VA loan any time after two years from the date of a foreclosure or bankruptcy ruling.
Depending on whether you qualify, you may get a VA loan to purchase a home or refinance an existing mortgage.
Getting a VA loan might seem great, but knowing just what might go wrong down the line is in your best interest.
Buying a home using a VA loan requires that you follow various steps.
Create a budget after accounting for your household expenses in order to determine how much you can afford to pay toward your mortgage each month. If you think you’re falling short, establish if you can eliminate some non-essential items from your lifestyle. While creating a budget is not necessary, it gives you the means to make a well-informed decision.
Compare different VA loan providers based upon parameters such as interest rates, fees, flexibility in terms, and customer service. Remember that the best mortgage provider might vary based on individual requirements. According to the Consumer Financial Protection Bureau (CFPB), not comparing mortgage providers can cost average homebuyers around $300 per year throughout the course of their loans.
Getting preapproved for your VA loan gives you a clear indication of how much your lender is willing to lend to you. It gives real estate agents and sellers an indication that you are serious about buying a home, and not just testing waters. Getting a preapproval might also work in your favor at the negotiation table, especially if you’re up against a buyer who does not have preapproval.
This step requires lenders to check your eligibility, determine your creditworthiness, and establish how much you may afford to borrow.
More often than not, home buyers do not have to pay real estate agents, as sellers are typically responsible for paying both agents’ commissions. While not all homebuyers employ the services of realtors, doing so might work in your favor.
Real estate agents tend to have local knowledge and can assist you with your search for the right home. They can help you at the negotiation table and can guide you through all the paperwork that follows. They can also answer any questions you might have about the home buying process. Finding a good real estate agent can be simple, provided you know what questions to ask.
This step can be fun, although finding the right home might take some time depending on the area you wish to explore. Bear in mind that homeownership and repaying a mortgage is usually a long-drawn affair. This requires steering clear of homes that you feel you might wish to sell in a few years. It is best to highlight your requirements at the onset and then look for homes accordingly.
This step is optional. However, it makes sense to get a professional inspection if you plan to purchase an old home. A professional home inspector will identify all types of major and minor defects, safety issues, as well as other existing and potential problems. This step gives you an indication of how much you might need to spend to get the house in order again.
Bear in mind that an appraisal is not the same as an inspection, and it does not delve deep into a home’s condition. It is the responsibility of a VA lender to arrange for an appraisal, as this helps establish its fair market value.
Consider taking advice from your real estate agent when the time comes to make an offer. This is because your agent should have the experience and the knowledge to try and get the best possible outcome for you. Your agent can carry out a comparative market analysis to determine if the home’s asking price is over the top.
Your agent can also guide you in adding contingency clauses. For example, if you have not inspected the house yet, a contingency clause that hinges on a successful inspection can safeguard your interests. Other contingency clauses can make the contract of sale subject to the approval of your mortgage and/or the home’s independent appraisal.
Homebuyers are usually required to pay deposits along with their offers. This tends to vary from 0.5% to 2% of the home’s selling price. Once you make a deposit, the buyer is required to take the home off the market. If you fail to go through with the purchase, you might have to forfeit the deposit amount partially or in totality, unless a contingency clause covers your reason for backing out of the deal.
Give your lender a signed copy of the purchase document. You might need to provide additional documentation during the underwriting stage. If approved, go through the closing disclosure carefully and sign the final paperwork. It can then take your lender up to a week to disburse the funds.
If you qualify for a VA loan, you may get on the path to homeownership without making a down payment. However, while getting a VA loan comes with various benefits, you need to take a look at possible downsides as well. If you are unsure about how well a VA loan might work for you, consider seeking assistance from a qualified professional.
30-YEAR FIXED-RATE MORTGAGE: THE PAYMENT ON A $200,000 30-YEAR FIXED-RATE LOAN AT 3.875% AND 80%LOAN-TO-VALUE (LTV) IS $940.14 WITH 0 % POINTS DUE AT CLOSING. THE ANNUAL PERCENTAGE RATE (APR) IS 4.026%. PAYMENT DOES NOT INCLUDE TAXES AND INSURANCE PREMIUMS. THE ACTUAL PAYMENT AMOUNT WILL BE GREATER. SOME STATE AND COUNTY MAXIMUM LOAN AMOUNT RESTRICTIONS MAY APPLY.
While the United States Department of Veterans Affairs (VA) acts as a guarantor for these loans, it does not issue them. Instead, its sets the framework surrounding aspects such as eligibility and requirements under which lenders may offer VA loans.
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