VA loan experts offer advice for first-time home buyers

Buying a home can seem daunting, especially the first time, but owning a property remains the biggest driver of generational wealth and eligible veterans receive certain benefits to make owning a home easier through the loan program. VA real estate.

Veterans, reservists and members of the National Guard can buy a home or refinance an existing loan — whether it’s a VA loan or not — with no down payment.

“The no down payment is definitely the signing advantage,” said Chris Birk, vice president of mortgage insights at Veterans United, a Columbia, Mo.-based mortgage lender specializing in VA loans. . “It’s been since the creation of the service.”

Related: Finding a VA Home Loan

VA home loans are also exempt from private mortgage insurance (PMI), which lenders apply as a monthly fee for conventional loans with less than 20% down payment. On average, this saves veterans $30 to $70 per month for every $100,000 of home value.

“It’s a huge saving,” said Terry Rouch – a Navy and Coast Guard Auxiliary veteran with three decades of experience in the home loan industry, who currently serves as deputy director of policy. of Loan and Appraisal for the Veterans Benefits Administration Loan Guarantee Service. “That’s what drives the whole program, it’s literally the ability to buy a house without making a down payment on that property. That’s why since World War II millions of people have used it. .”

Members of the National Guard and the Reserve may qualify for a VA home loan if they:

  • Served at least six years and was honorably discharged or retired;
  • Served 90 days or more on active duty, including at least 30 consecutive days;
  • Have been terminated or released from duty for a service-related disability.

Title 32 changes enacted in January 2021 made the VA Loan Program available to certain Guardsmen or Reservists who were previously ineligible, so it’s worth checking even if eligibility has you covered. been refused in the past.

“It (the changes to the law) has paved the way for thousands of new veterans who can buy homes or refinance,” Rouch said.

There is no minimum credit score required for a VA loan, although most lenders require a score of 620 or higher, and there is no limit to how much a veteran can borrow, although that the average home purchase with a VA loan is around $310,000, according to Rouch.

Here are some other tips, if you are considering using the VA home loan program:

Work with people you trust

Especially for first-time home buyers, working with a lender and a real estate agent can make the process much smoother. Finding a lender – credit unions, banks, and mortgage lenders – and a real estate agent who has experience with VA loans can be particularly helpful in gathering the documents needed for the pre-qualification process, which is essential in a market. tight and competitive housing.

“They can really elevate the transaction,” Birk said.

Make sure your credit isn’t frozen and consider working with a lender to fix any blemishes months before trying to buy a home. This can help you get a better rate and save money in the long run.

Be prepared to document your income and assets and avoid making other major purchases – like a new vehicle – or racking up credit card debt.

Shop around to find the best rate

Not all mortgage lenders are created equal, which is why Birk recommends pre-qualifying with multiple lenders, allowing the buyer to research the best interest rate and compare the fee structure for mortgages. items such as title insurance, loan origination, underwriting and other costs.

Be careful when providing information to mortgage aggregation websites, such as Lending Tree or Nerd Wallet, unless you want to be inundated with calls. You might also consider asking family and friends who already own a home about their lender and reading reviews online.

“We hope people will shop around a bit,” Rouch said. “Lenders are not created equal.”

It is not necessary to obtain your Certificate of Eligibility (COE) before beginning the home buying process, although some lenders may require it.

“If they (veterans) have questions about eligibility, they should work with a lender to gather the documents they need and apply for a COE,” Rouch said. “They can do it right away, but I wouldn’t recommend that they try it on their own. It will make the process a bit easier if they ask the lender to do it on their behalf, because they can do it.”

Weigh all your options

VA home loans often offer a lower interest rate than a conventional 30-year mortgage, which can save veterans a lot of money over the life of the loan.

With taxpayers’ money and VA financing feeswhich must be paid up front or built into the cost of a VA loan, the federal government partially guarantees VA loans against default.

“That ends up translating into lower rates ultimately for consumers,” Birk said.

Veterans can also reduce VA financing fees with a 5% to 10% down payment.

But there are cases where a conventional loan or another option might make more sense. While a VA home loan is “arguably the strongest option out there” and a fantastic option for most veterans, it’s not right in all situations for every veteran, according to Birk.

That said, don’t let anyone dissuade you from using your advantage, if you think a VA home loan is your best option.

“We see, from time to time, a lender or real estate agent pushing veterans into non-VA options when the veteran really wants to use their benefits and feels that’s the best path for them,” Birk said.

Don’t forget to account for all home ownership costs

As a landlord, you will now be responsible for paying annual property taxes – the money that funds the local school district, fire and law enforcement departments, and municipal and county governments – as well as the insurance yourself.

This money is usually paid in 12 monthly installments added to the monthly loan payment and held in an escrow account.

To save money, be sure to also rate the shop for home insurance. Many companies offer discounts for bundling home and auto policies, but it’s a good idea to get multiple quotes and re-evaluate these policies every few years.

As the owner, it’s also important to remember that you are responsible for any necessary maintenance and repairs. A good rule of thumb is to expect to pay about 1% of the home’s value each year in maintenance for things like plumbing, heating and air conditioning, and other common household repairs.

Don’t Be Paralyzed by VA Loan Myths

There are many myths about the VA loan process, which used to be more difficult for buyers and sellers. Some agents and lenders remain hesitant about VA loans, but the program has been improved and streamlined.

Although there are slightly different minimum property standards for a VA loan, it is a myth that veterans cannot buy properties that need repair.

Remember, these standards exist to prevent veterans from buying a faulty home with unsafe or unsafe conditions that will turn into a money pit after closing.

It’s also a myth that VA loans require the seller to pay more than a conventional loan, which eats away at any profit from the sale of the home.

“The evaluation process is no different for the most part,” Rouch said. “The only difference is that we order the appraisal, which means it’s a VA-approved appraiser that we schedule, versus a conventional loan, where they’ll go to anyone and schedule the appraiser. ‘evaluator.’

In most cases, VA has made changes to ensure its assessment process is less conservative and faster than in the past.

Do not be discouraged

In fiscal 2021, which ended in September, VA closed a record 1.4 million loans, experts said, despite soaring house prices. But many potential buyers have lost out to cash offers or bidding wars.

Rather than focusing on one property, take a flexible approach to your home search with a list of the necessities you need to be comfortable and satisfied in a home and get a good idea of ​​area school districts and access to amenities.

If you are buying a first home, it may not be in perfect condition, so you may need to invest a little.

If you’re moving to a new home, make sure you’re not overstretching your finances or paying too much for a property just because the market is hot.

Finally, remember that veterans, reservists, and guardsmen can use the VA home loan program — with its zero down payment option and PMI exemption — as often as needed to buy a home or refinance an existing loan, even if the original loan wasn’t a VA loan.

“If they’re upgrading, the VA home loan is still an option for them,” Rouch said. “A lot of veterans don’t realize this, but it’s not a one-time use. You can use the VA loan as many times as you want.”

For more information, visit VA website.

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