VA home loan useful, but watch for snags
For eligible service members and veterans, the Veterans Affairs Department’s home loan guarantee program can be a curse or blessing in today’s housing market. Among the advantages:
• It is among the few mortgage programs now available that does not require a down payment.
• In most locations, lenders will allow purchases of a home worth up to $417,000 without a down payment — and more than $1 million in some high-cost areas.
• Credit underwriting is a little easier with VA loans than with other mortgages. A buyer’s credit scores don’t have to be as high, and loans are possible with as few as six months of work history — not the minimum two years required for most mortgages.
• An inspection of the home is required to ensure it is safe and livable, which provides extra protection for first-time buyers.
But there are disadvantages:
• Not all lenders are willing to work with VA loans.
• A percentage of the loan fee (funding fee), charged by VA to offset the risk of having no mortgage insurance, could be wrapped into the mortgage, ranging from 0 percent for veterans with a service connected disability to 3.3 percent for second time or more use. I corrected this from the original post.
• There are limits on what fees can be charged to the buyer at closing; some sellers don’t want to be part of a sale that could force them to pay more closing costs. This becomes a non-factor when a veteran works with a VA lender that charges Zero fees.
• A strict home inspection and appraisal process often can make it impossible to buy a home “as is.” If the seller won’t agree to repairs, either done in advance of settlement or by putting money into an escrow account, a VA loan may not be approved. Of course, this should be in the advantage category really, as it is there to protect the veteran from purchasing a “lemon” or “money pit” home that could cost thousands. Conventional loans don’t have this kind of protection. I personally found out the hard way when I got a conventional loan to purchase my house and since have put in THOUSANDS of dollars in repairs that the inspector my realtor recommended didn’t catch. I’ll talk more about this in a separate post.
• Many sellers and their agents believe VA loans involve more red tape than other loans. Many sellers and agents don’t understand VA loans either. This is up to your lender to step in and help them understand the steps involved and relieve them of the mis-guided anxiety they may feel. VA loans should take no longer than a conventional loan if you have the right VA lender working for you.
• Generally, VA home loans are more likely to be accepted in housing markets where troops, veterans and military retirees are a sizable part of the market. This seems like a very one sided comment. It is true but I’m not sure where I see this as a disadvantage…. or an advantage. VA loans are accepted throughout the country, regardless of demographics. Just make sure if you are building a home, you are working with a reputable builder that is approved by VA. Again, I’ll talk more about this in a separate post.Rick Maze and Michelle Tan – Staff writer of militarytimes.com, has been edited to include the important points and keep out names. Some corrections were made to the facts.