In today’s volatile market, getting the financing you need to purchase a home is often a confusing and time-consuming process, however, it’s crucial that prospective buyers do their homework before picking the loan that’s right for them. VA loans, which are often overlooked, are a great option for past and current military personnel looking for financing in today’s more stringent mortgage environment.
Established in 1944 as part of the Servicemen’s Readjustment Act, VA loans are available for any individual who has served in active duty in any branch of the U.S. military for a minimum of 90 days.
“The beauty of this loan is that it allows financing without requiring a down payment,” said Eric Kandell, founder of lowvarates.com. “It also doesn’t allow the mortgage lender to charge the veteran private mortgage insurance.”
A VA loan does require the borrower to pay a one-time funding fee on their purchase, however, which can be paid up front or financed into the total cost of the loan. The funding fee for regular military members is 2.15 percent of the loan while Reservists pay a fee of 2.40 percent.
In addition to servicemen and servicewoman, non-active duty personnel, such as individuals in the Army Reserves or National Guard, may apply for a VA-backed mortgage provided they have completed six years of service. The spouses of deceased or missing military members are also eligible if they have not remarried.
“I’ve closed more VA loans in the past two years than in the past decade,” said Steve Thorne, area manager for First Financial Services, Inc. in Raleigh, N.C. “It really is a great benefit to the veteran in the ‘New Mortgage World.’ The key to getting more veterans to take advantage of this benefit is simply an awareness of the benefit.”
Statistics provided by the Department of Veteran’s Affairs show that there are approximately 25 million homeowners currently eligible for a VA loan. However, only 10-15 percent of those who are eligible have taken advantage of the VA loan program when buying or refinancing.
One reason for the low numbers is that for many years leading up to the mortgage crisis, there were numerous conventional mortgage products that were easier or more economical to the veteran than the VA loan.
“In the wild, wild west of mortgage lending from the early 2000s to 2008, 100 percent financing was commonplace,” Thorne said. “So why pay the VA funding fee just to have 100 percent financing? Not to mention the VA control of the appraisal process, understanding residual income and all the additional disclosures. It was a more cumbersome process than the ‘come on down, everybody gets a loan’ of the conventional arena.”
Many veterans, especially those not so recently discharged, don’t fully understand the benefits of a VA loan, and many aren’t even aware that they’re entitled to one. With a VA loan, veterans can literally buy a home with little to no money out of pocket.
“In the past, veterans were told about other financing on the market and people were more inclined out of ignorance to use non-VA loan financing,” Kandell said. “It’s a great loan and you are going to see a massive shift in numbers going forward, as these same real estate agents will be begging you to go VA now.”
Those interested in learning more about VA loans should talk with a mortgage representative to discover their options for getting the best use of these funds.
Borrowers who received a dishonorable discharge from any military branch are not eligible.
For more information about VA loans, contact our office today.