Purchasing a home is one of the largest financial investments most people will ever make in their lifetimes. There are arguments to be made for and against making a home purchase at this point in time. However, I am not here to persuade or dissuade you one way or another. That conversation is best left to your own kitchen table with the relevant individuals who will be most impacted by the decision. The purpose of this article is to point out why using your VA Home Loan benefit may be the best option to use if you opt to purchase.
There are typically three primary types of home loans to consider for purchasing your home. They are the Conventional home loan, the FHA home loan and your VA Home Loan. Conventional loans are given by private financial institutions without federal mortgage guarantees. They are usually the most expensive loans to obtain – especially in today’s un-friendly loan environment. For a conventional home loan, one must have impeachable credit; will need between 5% and 20% of the total loan amount as a down payment and will cost you, the buyer an additional 3% – 6% of the loan amount in closing costs and loan fees.
An FHA loan is one that is partially guaranteed by the federal government. Your credit still has to be darn good – if not great. You will need between 3% and 5% as your down payment and another 3% – 6% for closing costs and fees.
All these percentages are meaningless without some actual numbers to back them up.
Consider it this way – 1% of $100,000 equals $1,000 dollars out of your pocket. Those numbers add up quickly. Between down payments, closing costs and loan fees you could be spending between $6,000.00 and $26,000.00 for every $100,000 dollars you borrow for your mortgage. If you have outstanding credit and a bunch of money in the bank, maybe your VA Home Loan is not the right option for you.
However for most service members or veterans, especially if you are a first time home buyer – you probably just don’t have thousands of dollars lying around – and if you do – you may prefer to use it to furnish or decorate your new home rather than using it for banking fees.
A VA Home Loan allows the veteran or service member to buy a home with very little to no money down, charges no closing costs and has different credit requirements. Typically the VA Home Loan offers interest rates that are 0.50% to 1% lower than the other loan types mentioned.
So who can get a VA Home Loan? How does the process work? What will it cost me?
Generally speaking almost all active duty and honorably discharged service members are eligible for a VA Home Loan.
You May Be Eligible If Any One of the Following are True:
• You or your spouse served 181 days during peacetime (Active Duty)
• You or your spouse served 90 days during war time (Active Duty)
• You or your spouse served 6 years in the Reserves or National Guard, or
• You are the spouse of a service member who was killed in the line of duty.
Getting your eligibility certificate is a fairly easy process. You can go to the VA website at http://www.benefits.va.gov/homeloans/eligibility.asp to learn more, or you can simply have your VA Home Loan Specialist obtain one for you, usually in a matter of minutes. That is usually the quickest and easiest of the options available. What type of documentation you will need to obtain your eligibility certificate depends on your current status (active, veteran etc.). Veterans will need a copy of their DD-214.
Service-connected disabled veterans will need a copy of their award letter or other documentation from the VA proving your disability is service-connected. This is critical because if you or your spouse’s disability is service-connected only the last 12 months of your credit report is looked at and most medical or medically related debts are not considered in determining your credit rating or in your debt-to-income ratio calculations. This is not the case with a Conventional or FHA type of loan.
Although you are allowed to use non-VA Home Loan Specialists to process your VA Home Loan, the reality is most local banks and credit unions are not approved to issue VA Loans. If your lender is discouraging you from choosing a VA Loan, make sure it has the ability to issue a VA Loan. Remember, banks and credit unions make a good deal of money from the fees they charge. With a VA Home Loan certain fees are not allowed to be charged, therefore standard lenders will try to dissuade you from using any form of loan that they cannot make a hefty profit on.
There are multiple VA Home Loan Specialists to choose from. One of the reasons they can offer lower rates is because the majority of them are wholesale lenders rather than retail lenders. Local banks, credit unions and mortgage lenders are retail lenders. They are in the lending business to make money.
There are other reasons to choose a VA Home Loan Specialist over a conventional bank such as: they understand the intricacies of the VA Home Loan process, are fully aware of specific rules that don’t apply to standard loans, know exactly what documentation the VA will require not only for your eligibility certificate but for you to be approved as quickly and easily as possible. Companies that focus the majority of their business on VA Home Loans understand what a Statement of Service is as well as how to read your pay statement. They aren’t going to ask you for a “pay check stub” or argue with you about the information it does or does not contain.
Applying for a VA Home Loan is much easier and usually a lot faster than applying for other types of home loans. You can complete an online or over the phone loan application usually in 15 or 20 minutes (provided you follow the instructions and gather the information listed ahead of time) and be pre-qualified with a loan amount in about an hour. In that hour your credit will be checked, the application processed, the loan specialist will calculate your debt-to-income ratio and determine how much money you can spend on your new home.
Unlike a traditional financial institution, this loan person will be with you from the very beginning until the day you close on your house. Far too often when dealing with other types of loan companies – you have to deal with a new person at nearly every step in the process.
If you talk to five different people about buying a house, you will probably get five different answers as to when you should start the actual application and approval process. The general rule of thumb is that it takes 30 to 45 days to get your loan approval done. However the reality is the earlier you start the process the better you will be in the long run. How long the process actually takes depends on what is or isn’t on your credit report. The more negatives or potential problems there are, the sooner you should start. That way you can get anything that could delay or derail the buying process taken care of and out of the way.
Rather than just assuming you need to pay off this or pay down that, fill out the application and let the lender decide. You may find that something you thought was no big deal could delay the loan from being approved just as conversely you may discover something you thought would be a major problem isn’t one after all. Remember VA lenders normally only look at the last 12 months of your credit history. Of course if there is a bankruptcy, lien or multiple collections they may look further back, but only your lender will be able to tell you what is important and what isn’t. In the VA Home Loan process – assume nothing!
If you are considering making a home purchase within the next six months or less – go ahead and start the process. Wouldn’t it be better to have that approval in hand and have the luxury of time to find your dream home than to find your dream home and lose it because you cannot get financed in a timely manner?