Peathegee Inc/Blend Images/Getty Images
Veterans Affairs mortgage loans are a viable financing option 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 lenders 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 may be eligible for a loan. Certain surviving spouses of veterans are also eligible.
Steps to get a VA loan
- Obtain a certificate of eligibility: Submit VA form 26-1880 (Request for a Certificate of Eligibility) along with proof of your military service to the VA.
- Get preapproved for a mortgage: The lender will determine how much you can afford to borrow, which helps you figure out how much you can spend on a home.
- Find a home and sign a purchase contract. To get the VA process moving along, you must have an agreement to purchase a specific home.
- Give your VA eligibility certification to the lender when you apply for a mortgage. A lower credit score is not a deal breaker with VA loans.
- Get a home appraisal. A VA-approved appraiser will determine the value of the home.
- Get the funding fee paid. The VA assesses a funding fee that varies from 1.25 to 3.3 percent of the loan amount. You can add the fee to the loan amount, or you may be able to arrange for the seller to pay these fees. About one-third of VA borrowers do not have to pay the fees because of exemptions related to service-connected disabilities or death.
- File the certificate. After the closing, the VA will return your certificate of eligibility with a note stating that you have used your VA mortgage loan entitlement.
“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, Kansas.
VA guaranteed loans waive the requirement of private mortgage insurance that lenders require for loans with down payments of less than 20 percent. Sellers may also assume the 3 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. VA purchase loans are available only for owner-occupied homes; VA streamline refinance loans can be used for non-owner-occupied homes.
The process to obtain a VA loan can take longer than with a conventional loan, mortgage brokers note.
“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 with other similar homes in the area.
Refis and subsequent purchases
Veterans can use their eligibility more than once to obtain a loan on a new owner-occupied home, but as with subsequent refinancing, subsequent mortgage loans carry higher funding fees, although those fees can be reduced with a higher down payment.