If you are a veteran and looking for a mortgage, the VA loan is one of the most promising programs out there for you, but only a 33 percent of veterans actually take advantage of it. If you are uncertain about this program because of the myths that fly around regarding it, these statements will help you see the truth and the benefits of this program that promises to help you become a homeowner much easier than any other program available.
MYTH: VA Department provides the loans.
Truth: The VA does not provide the loans; individual banks provide the loans. This means that you can go to any bank that is authorized by the VA to provide these loans. How does this benefit you? Just like any other loan program, every bank has different requirements. Some banks will be tougher than others, which means if you have mediocre credit and a borderline debt-to-income ratio, some banks might not approve you for a loan, but that does not mean every bank will not give you one – you have to shop around. The role the VA plays in the process is that the guarantee the loans funded. As long as the standard requirements of the VA are met, the lender is free to add any additional requirements they may want to ensure the stability of the loan.
MYTH: You need excellent credit to qualify.
Truth: The VA loan is one of the most lenient products when it comes to less than stellar credit ratings. According to the VA, there is no minimum credit score, but you would be hard pressed to find a lender that does not require a certain level of credit score. In general, that score is around 620, but some lenders are willing to bend the rules slightly if you can provide other compensating factors. These factors could be a long, stable employment history; exceptional income; or low debt ratio, to name a few. What the VA does require is that you have no more than one late payment on your housing payments in the last 12 months – they hold this to a higher regard than your actual credit score.
MYTH: VA loans are risky because they do not require a down payment.
Truth: VA loans have the lowest default rate on the market. Because the VA uses a different approach to qualifying borrowers for a loan, they are able to determine who would and who would not make a good candidate for a home loan. Aside from looking at your debt-to-income ratio, the lender is required to look at your disposable income. You have to meet the strict requirements set forth by the VA regarding this money. The amount you must have is based on the size of your family as well as the area you live – the country is divided into four categories, each of which has different discretionary income requirements based on the cost of living in the area. This helps to make the VA loan less of a burden, which results in lower default rates.
MYTH: The VA benefit can only be used once.
Truth: Yes, you can only use the VA benefit once at a time, but you can use it over and over again if you continue moving. As long as the current loan that used the entitlement is paid off, then you can reuse the benefit. There are very few exceptions to the rule regarding veterans using their benefits more than once at a time, but those exceptions do exist. For example, if you did not use the entire amount of your entitlement because you purchased a low-cost home and you now have to move because your station is being relocated, you can use the remaining portion of your entitlement for the home you purchase in the new area while keeping your existing home and renting it out.
MYTH: VA loans are expensive.
Truth: VA loans are among the most affordable loans on the market. Because they do not require a down payment, you save money right from the start. In addition, they do not require any type of private mortgage insurance despite having a loan-to-value ratio much higher than 80 percent. The interest rates on these loans are also very competitive and lower than most other programs, making it one of the most affordable loans on the market. The only fee that is different than any other program is the funding fee, but this one-time fee is only 2.15% of the loan amount for new loans that do not put any money down.
VA loans offer veterans a great opportunity to purchase a home and still have money left over every month to pay for the daily living costs. If you have fallen for any of the VA myths, it is time to explore this option to see how well you can benefit from it.