Military veterans have an amazing benefit in the VA Home Loan. The VA Home Loan Program is a mortgage option backed by the U.S. Veterans Affairs Office that affords veterans benefits like no down payments, reduced closing costs, and better interest rates when purchasing a home. The usage rates on VA Home Loans has significantly increased since the housing bubble, with 2015 tallying a record breaking 631,151 loans.
However, despite the growth in popularity and publicity this amazing program is getting, most veterans and military families still aren’t taking advantage. The military and the VA is renowned for red-tape. The saying goes in military circles that anything having to do with the VA is, “hurry up and wait,” and this perception lingers after discharge when talking VA Home Loans.
Well, we are here to tell you that this perception is not only a myth today, but actually almost the complete opposite of reality. VA Home Loans can be some of the easiest to qualify for, fastest approved, and headache free mortgage options in the country. In fact, there are countless organizations including the VA, military non-profits, and even great lending companies like Veterans United here to help.
To help clear the air surrounding VA Home Loans and put this myth to bed, we have highlighted just a few misconceptions that just simply are not true.
You Need Perfect Credit
Not only is this a myth, it’s actually a complete farse. The truth is actually the exact opposite. With lenders making qualification standards more flexible and taking many other factors into consideration beyond credit.
The VA guarantees the loan and actually has no credit score requirements, the only requirement is time in service and not having a dishonorable discharge. However, private lenders are the ones who actually loan the money and yes they do have minimum requirements. The surprise is that most lenders only require a minimum score of 620 FICO to qualify! Also, if you have negative information on your credit report, the VA Loans generally have shorter waiting periods of disqualification. For example, most can qualify within 24 months of declaring bankruptcy.
The Costs Are Higher Than FHA Loans
First, if you buy property with VA financing there’s no down payment requirement. The FHA program requires borrowers to put down at least 3.5 percent. So, if you are borrowing say $200,000, you are saving yourself $7,000 at closing time from the down payment alone.
Now both the VA and FHA programs are actually insurance, which generally requires a premium. The VA up-front fee covering this premium is dependent on military status. Also, the fee varies according to how much you put down and whether you’ve used your entitlement in the past.
For this example, let’s say you put no money down, this is your first time using the loan (yes, you get to use it as many times as you want!), and your still on active duty. Your funding fee would be a measly 2.15%. With the FHA loan, the funding fee is called an MIP, would cost you a little less. $4300 versus $2000
However, the funding fee is a one-time cost with the VA and most buyers ask the sellers to cover it. With the FHA, the up-front MIP is lower than the typical VA insurance cost, but the FHA requires not only an up-front MIP but also an annual MIP. The FHA annual MIP would be 1.15 percent of the outstanding loan amount.
Because the loan amount goes down as the mortgage is paid off, the exact cost of the FHA’s MIP drops on each payment.
So, for a $200,000 the annual MIP would equal $2,300 per year or $191.67 in the first month of the loan.
Let’s study the numbers. The VA requires a lower down payment — nothing versus 3.5 percent. The up-front cost of insurance is higher for the VA program — but unlike the FHA the VA has no annual premium.
An FHA borrower with a $200,000 mortgage and a 4 percent interest rate will likely pay roughly $11,000 in annual insurance fees the first five years the loan. The VA borrower? Nothing! Both are great programs, but at the end of the day the VA comes out on top.
Closing Takes Too Long
In the past, the myth of red-tape and bureaucracy may have held true. Today, that just isn’t the case. In fact, VA appraisals generally come back within 10 business days today, comparable to other loan types. Additionally, there is practically no difference in closing times either, averaging 51 days in December 2015, 1 day longer than conventional loans according to Ellie mae. VA loans have long fought a reputation for being slow and choked with red tape. Some of that reflects old truths, but the program has become considerably more efficient over the past 15 years. VA loans also had a higher closing success rate than conventional loans throughout all of 2015.
They Are Too Risky
This one actually makes no sense if you stop to consider it. These $0 down loans have had the lowest foreclosure rate of any mortgage on the market for most of the past eight years, according to data from the Mortgage Bankers Association.
That success can be attributed in part to the VA’s guideline for discretionary income, which helps ensure buyers can stay current on their mortgage. Also, the VA has a foreclosure team that contributes to these fantastic numbers. They are updated regularly on the 2.5 million active VA loans and are on stand by in the event a sign of concern arises. Their efforts helped 90,000 veterans avoid foreclosure alone in 2015.
Keep these thoughts in mind when shopping for loans if you served, are serving, or are a military family member. Their are numerous resources available to you to assist in qualifying for the VA Home Loan. In most cases they are easier to qualify for, afford great benefits, and cost less than any other loan option. If you need help finding more information, contact The EM Team.