VA loans have some amazing benefits for service members who qualify. Here’s what you need to know to better serve your active duty and veteran clients.
VA loans are a fulfillment of a promise – they’re how the government provides service members and veterans with a pathway to the American dream of homeownership in recognition of the sacrifices made in the line of duty.
Below, real estate and mortgage professionals share three important things to know about VA loans.
1. VA loans don’t require a down payment
Something that makes a VA loan “America’s best loan,” according to Mario Negron, Broker/Owner of RE/MAX Pioneers in Cypress, Texas, is that veterans can use a VA loan to purchase a home with no money down.
“If the buyer’s agent is able to negotiate for the closing costs to be covered by the seller, they may not have to bring any money to the closing table,” Negron says.
Unlike most other funding options, veterans won’t have to pay private mortgage insurance if a down payment is under 20% of the home’s cost because the U.S. government is guaranteeing a portion (25%) of the loan.
A veteran may be able to buy a larger home or have more options for the school districts they’re able to move into because of the savings of not having to pay private mortgage insurance each month.
“Many veterans can qualify for 10% to 20% more home because they save the extra monthly expense of PMI that is required on a minimal-down conventional and FHA loan,” according to Robert Wolfe, a loan originator with and part owner of Motto Mortgage Apex in Beavercreek, Ohio.
2. Additional home inspections may be required with VA loans
A notable difference between using conventional financing or a VA loan is the added tests that may be required during the home inspection. These could include a test for wood-boring insects such as termites and a requirement that four inches of the foundation be visible around the property.
“These are almost the same restrictions as an FHA loan. Windows need to go up in case there’s a fire, the door needs to lock if the unit is on the first floor, paint can’t be peeling because of lead concerns,” says Donna Deaton, a Sales Associate and Manager with RE/MAX Victory in Liberty Township, Ohio. “Common sense stuff, but they are things a conventional lender doesn’t have to worry about.”
Other requirements come into play around who pays for the inspections. Buyers need to pay for the home appraisal and sellers are required to cover the cost of the termite inspections.
3. VA loans do come with additional fees
Veterans are required a to pay a 2.15% funding fee when they finance a home through the VA. (Note: This is set to increase to 2.3% in 2020.) A down payment of 5%-10% reduces the funding fee, and fees are waived entirely for veterans determined 100% disabled by the VA. Although the funding fee increases each time a veteran uses their loan, many veterans who reuse their VA loan benefits may be receiving money from the sale of a previous property, which means they potentially have enough money for a down payment to cancel out the fee.
“The funding fee is more of an issue for subsequent users, or those reusing their VA loan benefits,” Wolfe says. “But subsequent users are often selling their current home, so they have the ability to have a down payment. A down payment of 5% or more, on a subsequent use, can substantially lower the required funding fee.”
More information about VA loans can be found on the U.S. Department of Veterans Affairs website, including eligibility requirements and required documents veterans will need to get the process started.