Seven Must-Read Facts About VA Loans

Twenty million and counting.

That’s how many Veterans have secured home financing since 1944 using the VA Loan Guaranty Program. This benefit has now helped generations achieve part of the American dream they fought to defend.

Today, in an era of tighter mortgage lending requirements, this long-cherished program is arguably more important than ever. So is making sure that Servicemembers and Veterans are aware of the home loan benefits earned by their service.

To that end, here’s a look at seven key facts about VA loans.

No down payment

This is the singular, headline-garnering benefit of the program. Qualified Veterans can purchase up to $417,000 in most parts of the country without having to make a down payment. Buyers in more expensive parts of the country can go even higher. It’s tough to overstate just how significant this is in the current lending environment.

For example, let’s say you want to purchase a $200,000 home. For a conventional mortgage, the minimum down payment would be $10,000, or 5 percent of the purchase price. FHA loans require at least 3.5 percent down, which in this case is $7,000. Saving that kind of lump sum can be a tall order for the average military homebuyer. For some perspective, VA borrowers on average have just under $7,000 in assets.

The no-down-payment benefit helps Veterans get into homes without having to spend years scrimping and saving for a day that might never come.

Government guaranty

VA doesn’t actually make home loans — in all but a few cases. Instead, it provides a financial guaranty to private VA-approved lenders; basically a promise to repay a portion of the loan should the borrower default. That promise gives lenders a degree of confidence and allows them to extend financing to qualified Veterans without the need for a down payment.

It’s important to understand that VA’s fiscal guaranty doesn’t mean that eligible Veterans automatically get a home loan. Not every Veteran who’s eligible for a VA home loan will get one, because prospective borrowers still need to meet requirements set forth by both VA and approved lenders.

Credit requirements

While the VA guaranty breeds confidence, lenders are still on the hook for most of the loss if a Veteran defaults. That’s a big reason why lenders are able to introduce requirements beyond what VA needs to see to determine eligibility. A credit score minimum is probably the most common example of where these two roads diverge.

A credit score is essentially a representation of your ability and willingness to repay debt. Rather than cite a specific score, VA simply wants Veterans to be a “satisfactory credit risk” in order to utilize this program. But lenders go a step further and require that borrowers meet or exceed credit benchmarks. This type of additional requirement is known as an “overlay” and helps lenders better manage their risk.

Right now, most VA lenders are generally looking for a score of at least 620. That’s well below what Veterans will typically need to satisfy conventional and even FHA lenders.

No private mortgage insurance

Loan programs that require a down payment often come with an additional financial drain: mortgage insurance. Unless you can put down a hefty chunk of change (typically 20 percent of the purchase price), conventional borrowers will be on the hook for a monthly mortgage insurance payment until they’ve built sufficient equity.

FHA loans have an upfront mortgage insurance premium along with an annual fee that borrowers now pay for the entirety of the loan term.

VA loans have no mortgage insurance. Because of this benefit, the Veterans who secured VA financing last year will save $19 billion over the life of their loans.

Fighting off foreclosure

VA loans have had the lowest foreclosure rate of any loan product for nearly all of the last five years. That’s an incredible achievement considering nine in 10 come with no down payment.

The overall safety of the loan program is rooted in VA’s prudent underwriting requirements, its even-handed appraisal process, and its tremendous commitment to helping Veterans keep their homes.

The Loan Guaranty program has more than 150 loan specialists who work to educate Veterans about foreclosure avoidance and intervene with lenders and servicers. Their efforts have helped more than 300,000 Veterans who became delinquent on their mortgage to fight off foreclosure.

It’s not a one-time benefit

One of the most common misconceptions about this program is that it’s a one-time shot. That’s absolutely untrue. Once you earn this benefit, it’s yours for life. You also don’t necessarily need to repay your original loan in full in order to purchase again with a VA loan. What’s possible will depend in part on how much VA loan entitlement you have remaining.

VA loans are booming

VA loan volume has soared 380 percent since FY07. The program’s recent boom comes as Veterans have struggled to qualify for conventional and even FHA home financing in the wake of the housing market collapse. Veterans are flocking to the safety, security and significant benefits of VA loans.

The federal government created this program nearly 70 years ago to help level the playing field for Veterans and military families. Today, the VA Loan Guaranty program plays the same critical role in helping open the doors of homeownership to those who might otherwise struggle to secure it.

In fact, VA loans may now be more of a lifeline for military borrowers than at any time since World War II.

Chris Birk is the author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.” He is also executive editor at Veterans United Home Loans. You can follow him on Google+.

 

 

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24 Comments to “Seven Must-Read Facts About VA Loans”

  1. Wilson Ramirez says:

    I would like to obtain more info on this. I am hardly paying my mortgage. The banks here dont help anybody in Puerto Rico

    • Chris Birk says:

      @Wilson: Thanks for writing and for your service to our country. You can contact the VA Regional Loan office in St. Petersburg, Fla., at 1-888-611-5916 for more information.

  2. ford hoyt says:

    tried to obtain va loan, fort myers fla, too limited. only 3 condo units approved by va. after agent orange, water contaimination, cant work, and no help from va.. good morning viet nam. !!!!!

    • Chris Birk says:

      @Ford: Thanks for writing and for your service to our country. Lenders can ask the VA to consider adding condo developments to the approved list. You may want to talk with a VA-approved lender about this in more detail.

  3. margot Livingstone says:

    Hi, Since my Husband died, June 4 2012, I have been spiralling downhill. I am unable to meet my bills…my house is falling apart. No work kitchen sink, no working toilet which rotted the floor, the 9 feral cats that my husband left behind, used the insulation as a catbox and have been pulling out, 1 working heater, all but 1 is working. and so on.

    When I do fix something… like I just replaced a heater for $127 and the necessary plumbing to fix the toilet, left me broke and it is only the 5th of the month. I get food from the food bank. I was a caretaker for my husband for 3+ years, and this is what I get… A miserable existence. No help. My credit sucks…. due to many factors…widow’s benefits…6 waiting is rediculous and 6 months of hell, ruined my credit since I felt I had no other way to live. I went the Payday loans,,,,awful

    • Chris Birk says:

      @Margot: I’m so sorry for your loss and what’s followed. Here are some potential resources:

      =You can contact the National Call Center for Homeless Veterans at 1-877-424-3838. They may be able to provide assistance or direct you to agencies that can.

      =USA Cares is a national nonprofit that provides financial assistance to veterans and military families: http://www.usacares.org

      =My company has its own philanthropic foundation, Veterans United Foundation. We make donations to organizations and individuals in need: http://www.enhancelives.com. You can also reach me directly at chris@vu.com.

      =In terms of your credit, you can contact the Lighthouse program here at Veterans United Home Loans. They work with veterans, service members and their families for free to develop a plan to repair their credit. You can reach a Lighthouse credit specialist at 888-392-7421.

  4. Gene says:

    I was lucky enough to get a VA loan and it changed my life! The seller was trying to pull a fast one, and not want to let me buy it. He had a deal with the bank that held the defaulted mortgage he wanted to make the money as the selling agent and the buying agent.
    My lender, VA approved told him we were going to take it to the Governor of Wisconsin. We closed in less than 2 weeks.
    Not having to make a down payment was very helpful, not having to have insurance was also a big help.

  5. Adonis De Jesus says:

    My question is what is the minimum fico points for a favorable mortgage interest rate and lower escrow closing costs?

    • Chris Birk says:

      @Adonis: Thanks for writing and for your service to our country.

      Credit score requirements and ranges can vary by lender. In general, most VA lenders are looking for a credit score of at least 620. VA interest rates are competitive with and often lower than conventional rates, even with that kind of credit score.

      Generally speaking, the higher your credit score, the better rates and terms you’ll be offered by lenders. That’s one reason it’s good to shop around and compare costs and the APR (annual percentage rate) of different loans — not just the note rate you’re quoted. Hope that helps. Let me know if you need anything else.

  6. The average percentage rate for VA loan are how much.

  7. the average percentage rate for VA loan I still at 6% or has it been lowered.

    • Chris Birk says:

      @Kenny: There isn’t any kind of mandatory interest rate on a VA loan. Lenders will set rates based on what’s happening in the greater economy, and those can change by the day and even by the hour. Bankrate lists the current average APR for a 30-year fixed-rate VA mortgage at 4.29 percent. Prospective borrowers can get quoted different rates depending on their credit score and other financial factors.

  8. raymond mccaskill says:

    im in the lighthouse program, can you help me?

    • raymond mccaskill says:

      Thanks Chris6

    • Chris Birk says:

      @Raymond: Thanks for writing and for your service to our country. I’m happy to hear you’re utilizing our Lighthouse program. They work wonders in terms of helping veterans take simple, concrete steps to boost their credit scores. Your Lighthouse consultant is probably the best contact, but you can always reach me at chris@vu.com.

  9. Bruce shaffer says:

    How do you go about getting one in Pennsylvania ?

  10. Beth says:

    I recently had a short sale-I was told that I would be able to purchase again immediately as long as the short sale property was kept current until it closed. This was the case. Am I eligible to purchase another home through VA right away?

    • Chris Birk says:

      @Beth: You would likely need to wait two years from the foreclosure date before a lender would consider extending financing. You’d also want to investigate how the short sale has affected your credit score, which would be another important factor for lenders to consider.

  11. Jerry says:

    Chris, I used my VA loan while I was serving in 1987 to purchase a mobile home in North Carolina, we had that mobile home for many years and took it with us many places, as a matter of fact when I was discharged from the service in 1993 we lived in the home here in Ohio for the first year and it is still here with people living in it. Now as a veteran, I have sold the mobile home in 1996, all the loans was paid, there is nothing on my credit about owing anything on the loan but the VA still has a hold on me using the program again because the bank did not release me from the loan with the VA. After researching what bank I was using and trying to get it corrected, I’ve discovered that the bank is no longer in business. I would like to use it again to refinance my mortgage now. The VA says the bank has to release me and the bank is no where to be found. what can i do in this situation?

    • Chris Birk says:

      @Jerry: Thanks for writing and for your service to our country. There are a lot of moving parts here. It might be easier if we talk via email. You can reach me at chris@vu.com. In general, you may have enough entitlement remaining to obtain a refinance despite the loan release issue. But I can also share some thoughts on how to get that issue cleared up. Talk to you soon.

  12. Connie Bradshaw says:

    My husband just weeks before he passed away called in an attempt to get our retirement home loan started. He was told someone would return his call, no one ever did. Now I am left with shattered dreams loosing my husband and loosing the benefit he spent 22 years earning. I feel something is wrong with this mindset.