A VA loan is more than a mortgage with favorable terms – it’s fulfillment of a promise. As part of honoring those who serve the United States, VA loans are how the government provides veterans with a pathway to the American dream of homeownership.
But according to Mario Negron, Broker/Owner of RE/MAX Pioneers in Cypress, Texas, when it comes to VA loan benefits, little counseling is offered to veterans once they’ve returned to civilian life.
“Most veterans aren’t aware of many of their VA benefits when they get out of the service,” Negron says.
Negron, who specializes in helping veterans and their families, offers a free life-skills class that teaches veterans how to make the most of their benefits – including the ability to buy a home with little to no down payment.
In honor of Veteran’s Day, real estate professionals share three important things to know about VA loans, including pros and cons and how the loans help give back to those who have given so much.
According to Negron, VA financing for a home is “pretty much America’s best loan.”
The loan comes with several benefits not found through other funding options. For example, veterans can use a VA loan to purchase a home with no money down. And VA loans don’t require private mortgage insurance (PMI), which is typically necessary on traditional loans if a down payment is under 20% of the home’s cost, because the U.S. government is guaranteeing a portion (25%) of the loan.
“If the buyer’s agent is able to negotiate for the closing costs to be covered by the seller, they may not have to bring any money to the closing table,” Negron says.
But don’t assume it’s a no-cost loan. There are still some fees that come into play, according to Robert Wolfe, a loan originator with and part owner of Motto Mortgage Apex in Beavercreek, Ohio. Veterans are required to pay a 2.15% funding fee (Note: This is set to increase to 2.3% in 2020), which increases with multiple uses of VA loan benefits. A down payment can reduce the required funding fee. A veteran is exempt from any funding fee if they have a 10% or more VA Disability.
“The funding fee is more of an issue for subsequent users, or those reusing their VA loan benefits,” Wolfe says. “But subsequent users are often selling their current home so they have the ability to have a down payment. A down payment of 5% or more, on a subsequent use, can substantially lower the required funding fee.”
VA borrowers should be aware that the loans generally include a few extra steps or requirements regarding the condition of the home. Additional home inspections that may come along with VA loans, most notably a test for wood-boring insects such as termites, are mostly “common sense” items, according to Donna Deaton, a Sales Associate and Manager with RE/MAX Victory in Liberty Township, Ohio. Such inspections help ensure the property’s safety and habitability.
“These are almost the same restrictions as an FHA loan. Windows need to go up in case there’s a fire, the door needs to lock if the unit is on the first floor, paint can’t be peeling because of lead concerns,” Deaton says. “Common sense stuff, but they are things a conventional lender doesn’t have to worry about.”
Another requirement: Four inches of the foundation must be visible around the property.
“In some rural areas, digging that four-inch trench can sometimes be overwhelming for sellers,” Negron says.
These requirements have given some agents the perception (or as Deaton calls it, misconception) that VA loans are difficult to work with.
“There are some things that a VA buyer cannot pay for where the seller has to pick up the tab. For example, the termite inspections,” Deaton explains. “The seller has to pay for the inspections, but the buyer has to pay for the appraisal. It’s just part of the VA rule book.”
Although the VA has strict rules for who has to pay for what, Deaton insists an experienced agent can help a buyer and seller negotiate around them.
“Agents can work to get past the added inspection and figure out how to get some of those fees covered through negotiation,” Deaton says.
The spouses and children of veterans also make sacrifices while a loved one serves in the military. When agents and loan originators help a veteran purchase a home using a VA loan, they are giving back to the veteran’s family. The benefits that come with financing a home through using a VA loan may mean a veteran is able to buy a bigger home or purchase in a stronger school district.
“Many veterans can qualify for 10% to 20% more home because they save the extra monthly expense of PMI that is required on a minimal-down conventional and FHA loan,” Wolfe says.
Negron adds: “One of my veteran clients was able to purchase in a stronger school district because he was saving an extra $250 in private mortgage insurance each month.”
Not only does the family benefit, but Negron says serving those who have served is a feeling that can’t be matched.
“It’s truly incredible to help a veteran purchase a home,” Negron says.
To get started purchasing a home using a VA loan, veterans can reach out to a mortgage professional of their choice to help them determine their eligibility and gather the required documents. More information can be found on the U.S. Department of Veterans Affairs website.