The VA mortgage is hands-down the best mortgage loan program. Here’s what you need to know if you’re a US military veteran and you’re eligible for VA financing…
The VA does not grant loans, but they guarantee loans. The Department of Veteran’s Affairs guarantees the lender against payment default.
VA loans typically have much lower interest rates than conventional loans and contain no monthly PMI. The main benefit to a VA mortgage is that you do not need any down payment and VA interest rates are extremely low. Presently, interest rates on VA mortgages are between the mid to high 2s for 30-year fixed-rate mortgages for a single-family home.
VA loans contain no monthly PMI, but do contain an upfront cost premium. This premium is called a guarantee fee and it is based on 3.6 percent of the loan amount if you are non-exempt. If you are a veteran this fee would not apply. The other big benefit to VA financing is there are no more loan limits. This changed in January 2020. You can purchase a house for a million dollars with no money down using VA financing and that loan will close escrow provided that you have ample credit, income and the elements necessary to successfully close escrow on financing.
The property must clear a section one pest report. On a refinance, the homeowner would have to pay for the report and any needed repairs and on a purchase transaction the seller can pay for the report and the buyer or seller has to pay for any needed repairs.
Mortgage tip: if the property is on well and septic more than likely a well and septic test and potentially even a water test might be required.
VA loans can also be used for manufactured homes so long as the house was built June 1, 1976, or after; it’s a double-wide or bigger and the appraiser may require a manufactured engineer certification. This is going to be up to the appraiser on an individual basis if there have been any improvements to the property.
To get started VA buyers would need to provide ample supporting income documentation including tax returns and/or pay stubs and W-2s, of course, bank statements and the biggie which is their DD-214 which for eligibility.
Mortgage tip: your entitlement says a specific number on your VA DD-214 that is not to be confused with the amount of loan you can apply for. It’s not uncommon if you had entitlement for sale $300,000 which automatically means your loan is $300,000- it does not work in direct unison. The entitlement is the coverage on the VA loan based on a specific lending calculation.
This also points carrying two VA loans out at the same time. The more entitlement you have the more ability you must have to handle bigger VA debt. Such an example would be using a VA loan to finance a primary house living in the property for a year or two then turning around to renting it out and then getting a new VA loan to buy a new primary house. Such a scenario may work from an underwriting perspective so long as you have the entitlement so be sure to connect with an experienced quality lender who knows VA loans (a hint that’s not an internet-only lender or the lender cold calling you or soliciting your mailbox).
One other caveat about VA loans-to use a VA loan to buy a primary house it is only for a veteran and their spouse. A co-signer for non-spouse is not eligible to help qualify. The only way a non-spouse can co-sign is a military veteran is putting down 12.5 percent. This something to consider depending on your individual unique situation.
VA Loans offer some attractive financing for those military veterans and their families to purchase and finance homes with maximal borrowing power.
Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com