If there’s one program in the mortgage industry that is most misunderstood, it’s VA home loans. Both buyer and sellers often misunderstand this flexible and affordable program for veterans.
Here we try to help you understand the truth about the program and how it can benefit you.
Myth: It’s hard to qualify for VA home loans.
Truth: VA home loans actually have some flexible guidelines. They are among the only program that doesn’t focus on the debt ratio, but rather a borrower’s disposable income. In fact, the VA doesn’t even put a lot of emphasis on your credit score either. This doesn’t mean they don’t have a minimum credit score requirement, because they do. They require a 620 score, but focus more on the disposable income.
Your disposable income is the money you have left after you pay your monthly bills. This doesn’t include things like utilities and groceries. Instead, it’s the bills you pay that report on your credit report. Car payments, mortgages, credit cards, and personal loans are among the top bills that count. The money you have left after that must meet the requirements of the VA in order to qualify. They base this amount on your family size and area of the country that you live.
Myth: The VA appraisal is hard.
Truth: The VA appraisal might have a few more restrictions than a conventional loan appraisal, but it has one goal. That is to make sure the home is safe, sanitary, and livable for veterans. The VA provides appraisers with a checklist with features that the home must have. As long as the home has these things or passes the requirement, the home will pass the VA appraisal.
A large part of the requirements is making sure there is enough living space for each member of your family and that the home is safe and sanitary. In other words, there can’t be broken railings, holes in the wall, or mold growth in the attic, as a few examples.
In reality, every loan program requires an appraisal and any proper appraiser would point out any issues as noted above, so the VA appraisal isn’t anything out of the ordinary.
Myth: VA loans take forever to close.
Truth: VA loans don’t take any longer than any other loan to close. How long it takes doesn’t even depend on the VA. It really depends on the lender and you, the borrower. If you provide the lender with a full underwriting package, you’ll get through the process faster. A full package includes:
- Tax returns if applicable
- Asset statements
- Purchase contract
- Any letters of explanation
Similarly, you need to stay in contact with the lender. Talk with them every few days to see the status of your loan and what they might need from you. If they ask for documents, make sure you provide them right away so that the process can go quickly.
Myth: Sellers must pay the veterans closing costs.
Truth: Sellers can pay the buyer’s closing costs, but they do not have to pay them. It’s not a VA rule that sellers are responsible for the fees. Buyers can pay them or even wrap them into their loan amount. The VA loan does allow for seller concessions, though, which means the seller pays the fees for the borrower.
Usually this is something the buyer and seller work out during the negotiation process. If the seller is willing, he will say so while going back and forth with the bidding process. If he is not willing, you can take that into consideration when choosing your bidding price if you need help with the closing costs, you’ll need room between the home’s value and the purchase price to wrap the closing costs into the loan.
Myth: If you are a veteran, you can have a VA loan.
Truth: You have to obtain your Certificate of Entitlement. You can obtain this after you serve at least 90 days in the military during wartime or 181 days during peacetime. The certificate shows lenders how much of a guarantee the VA will provide the lender. Each eligible veteran starts with enough entitlement for a $453,100 loan. The VA guarantees 25% of that amount. This is how VA borrowers don’t have to put money down on the home. The 25% guarantee takes the place of the down payment.
Once a veteran uses some of the entitlement, it’s gone until they pay the loan off and sell the home. However, if you have entitlement left, you can use it for another home as long as the first home you purchased doesn’t meet your family’s needs or you were relocated and the commute is more than 50 miles.
VA home loans offer a flexible program that is affordable for veterans. It’s not the slow process that had hard appraisal requirements any longer. The people that believe these myths are thinking of the VA loans of the past. Today the VA loan is a great program for any veteran that wants low interest rates and no down payment requirements.