VA loans offer good deals
Shoved aside by the hot mortgage products of recent years, Veterans Affairs mortgage loans are making a comeback and are a viable financing alternative for veterans looking to secure an attractive fixed-rate loan with little or no money down.
The loans, guaranteed by the federal government, are available through local banks and mortgage brokers around the country.
If you're an honorably discharged veteran, are currently serving on active duty or have completed a total of six years of service in the National Guard or selected reserves, you are eligible for a loan. Certain surviving spouses of veterans are also eligible.
Loan limits are $417,000 in most areas of the country but are higher in certain regions.
"We are seeing a lot of activity in VA loans because there just aren't the alternatives for no-money-down loans that there used to be," says A.W. Pickel III, CEO of LeaderOne Financial, a mortgage broker based in Lenexa, Kan.
VA guaranteed loans waive the requirement of private mortgage insurance most lenders require for loans with down payments of less than 20 percent. Sellers may also assume the 3 percent to 4 percent closing and administrative costs required as part of the loan and build it into the home's purchase price, making these loans even more attractive. The loans are only available for owner-occupied homes.
The process to obtain a VA loan can take longer than with a conventional loan, mortgage brokers note, which was one factor in their declining popularity versus other products.
"In the past, many Realtors have steered borrowers away from government loans, including VA and FHA loans, because of the additional documentation required as part of the appraisal and inspection process," says Steve Jacobson, CEO of Fairway Independent Mortgage Brokers.
"There was a perception that these government-backed loans got more scrutiny and that they take longer to close."
While the process may take longer than a conventional loan, the more favorable terms are worth it, and there are steps you can take to speed it along, such as obtaining your certificate of eligibility before you sign an agreement to purchase a home and ensuring that your purchase price is comparable to other similar homes in the area.
Here's a step-by-step look at what you need to do:
1. Obtain a certificate of eligibility from the VA. Submit VA form 26-1880 along with proof of your military service to the VA.
2. Find a home and sign a purchase and sale agreement. To get the process moving along, you must have an agreement to purchase a specific home.
3. Submit your VA eligibility certification to a lender and fill out an application. Your lender will verify the information on your application and obtain a copy of your credit report and credit score. A lower credit score is not a deal breaker with VA loans, so even if your credit isn't the best, as long as you have the income to make the monthly payments, including taxes, you should qualify, says John Kaempfer, a senior loan consultant with Vitek Mortgage Group.
While federal VA home loans offer homebuyers some good deals, 10 states also offer mortgage opportunities for veterans.