But lenders set different fee schedules and credit requirements, so VA loans from two lenders for the same house could look very different.
“There’s a lot of confusion out there,” says Grant Moon, founder and CEO of VA Loan Captain, a comparison-shopping site for VA mortgages. “It behooves the veteran to really shop around.”
To help you get started, here are several facts about VA loans that will likely surprise you.
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If you served, you’re probably eligible
Too many times, prospective homebuyers don’t consider looking for a VA mortgage because they don’t realize they qualify. It’s pretty surprising, but 1 in 3 homebuying veterans didn’t know about the mortgage benefit, according to a 2010 VA survey.
When it comes to veterans’ awareness of their eligibility, “I feel like it’s gotten better in recent years,” says Chris Birk, director of education for mortgage lender Veterans United Home Loans.
To close a VA loan, you’ll need a “Certificate of Eligibility” from the VA. You can get the certificate either directly from the VA or through your lender.
Use our calculator to figure out how much house you can afford.
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VA loans offer lower interest rates
As of May 2017, “VA loans have had the lowest interest rates on the market for the last 36 months,” says Birk. “And I think that’s something that surprises borrowers.”
There isn’t a single standard interest rate for all VA loans, however. Each lender will offer its own rates, which is a good reason to shop around. And not all VA lenders use “risk-based pricing” that’s tied to how high or low your credit score may be.
Without risk-based pricing, qualifying for a mortgage is basically a pass-fail test. If your credit is good enough to get approved for the loan, you get the going rate. A higher credit score or better credit profile won’t win you a better deal, says Donna Bradford, assistant vice president of mortgage specialized operations for Navy Federal Credit Union.
As with conventional mortgages, buyers with VA loans can pay points at closing if they want to lower their rate even more.
You can be approved for a VA mortgage two years after a Chapter 7 bankruptcy discharge or foreclosure, or one year after starting a Chapter 13 reorganization. However, if your foreclosure involved a VA mortgage, that portion of your VA loan entitlement is no longer available.
If you think VA loans involve more red tape than a conventional loan and take longer to close, you’re wrong. A conventional home loan, on average, took 43 days to close in March 2017, compared with 45 days for a VA loan.
Still, some sellers or their agents will shy away from VA buyers, fearing the worst. That “can be challenging” for buyers, says Veterans United’s Birk, especially in competitive markets.
That’s one reason VA loan experts recommend choosing a buyer’s agent well-versed in VA loans. “There are contingencies you want in the offer,” plus appraisals are slightly different, and experienced pros know how to navigate competitive-bid situations, says Moon, of VA Loan Captain.
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There are limits on closing costs
VA buyers will pay closing costs, but they’re more limited than closing costs on conventional loans.
The VA allows lenders to charge no more than 1 percent of the loan amount to cover origination, processing and underwriting costs.
If a lender does not charge a flat 1 percent origination fee, closing costs such as attorney’s fees, underwriting fees and document fees, cannot exceed 1 percent of the loan.
Higher costs for these items don’t necessarily become the seller’s responsibility. In some cases, lenders, agents or brokers can pay certain fees. Some lenders might allow for this when they set their origination fees.
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A VA loan can be passed on to a buyer
If you want to sell a house bought with a VA mortgage, you can sell that mortgage right along with it.
Known as “assuming” a mortgage, this is a feature that was popular in decades past, when interest rates were much higher. It allowed sellers in a buyer’s market to offer a lower interest rate as an incentive to buy their home.
Buyers still have to be able to qualify for the loan, says Bradford, of Navy Federal Credit Union. So while it would allow for someone with a slightly lower credit score to get a home, it’s not a workaround for those with bad credit or no credit.