VA Loan rather than regular mortgage?

Question

My husband who just served 3 years in Iraq was offered a VA loan. Not receiving much information on this service, we don't know if it's exactly true or what the circumstances are. We're renting at the current moment and are interested in purchasing property. Before we do so, can anyone give me details on VA loans and the difference between them and regular mortgages? Thanks in advance!

Answer 1

I have used VA loans before. The advantage of a VA loan is that no down payment is required,and the points are lower. You still have to pay closing cost,which could amount to over $5,000,but you can include some of the closing cost in with your loan on a VA.
Lenders do not like VA loans for that reason. They try to steer you away from choosing a VA loan,saying other loans are "easier". They are "easier" for them ,because there is less paperwork. I think that this is wrong,and I wonder how many Veterans are out there that could not use their VA loans because a Realtor or a lender did not want to go through the "paperwork".,as they put it to me back in the early 80's.
Use your benefit as a Veteran,and do not let anyone deter you from using one of your benefits as a Veteran because someone does not want to fill out more paperwork.
I have heard all kinds of excuses why "other loans are better",but do not believe them,VA loans actually are better for the borrower,not the lender or the Realtor and the points are lower and will in the end cost you the Veteran a lot less money.
Good luck dealing with the bureaucracy,and oh by the way,you can save money on your title by going downtown to the Title agency and purchasing the title yourself,I saved over $300 ,doing it that way.
Good luck again with your new home and enjoy the benefits that you and your husband rightfully deserve.

Answer 2

Dfirefox had a good answer. VA is a great product overall. You finance a one-time funding fee, and never pay mortgage insurance again. It's the only 100% financing product out there like that, and the qualifying guidelines are as generous as they get for high loan-to-value financing,especially considering VA has very good rates.

That being said, a couple factors could possibly make conventional financing more appropriate. How long will you be in the home? When you buy this property, you'll probably do 100% financing, and also finance the upfront guaranty fee to VA of 2.15%.

So right out of the gate, you'll owe more than the home is worth. This is just fine, if you intend on living in that home for a long time, since it will take a year or two just to get your first dollar in equity. Maybe less, but no one knows how the housing market will perform. To have enough equity to cover paying a realtor and selling costs, you'd need about 10% equity. So, you need to gain 12.15% just to sell without paying out of pocket to do so. That's very likely a 3-5 year minimum timeframe, just to break even when you sell.

If your credit is very good (minimum 680 credit score), you might be able to get a conventional 80/20 that offers almost the exact same payments, while financing only 100% of the purchase price, not 102.15%. Or, if they are nominally higher, it might take 3-5 years for the conventional payments to add up to 2.15% more than the purchase price, meaning you'd break even on it after a few years, then it would cost you more. A good loan officer can run the numbers and show you on paper what this could look like.

Lastly, there's one final pro/con with VA. VA has their own roster of appraisers, and VA is the one who actually orders the appraisal. These appraisers are notorious for coming back with a value LESS than the purchase price. This is both good and bad. And the primary reason some sellers and realtors have historically avoided VA buyers. Making the seller pay your $250 closing fee has never been a factor for me, that I've seen, as it's generally accounted for in the purchase price anyway.

Good: you don't have to complete the transaction, and get 100% of your earnest money back. Or, you get the seller to drop down to match the appraised value, and you buy the home for less money. Since you're already that far into the deal, the seller might agree to do so just to close on time and not have to remarket the property.

Bad: If the value is lower, you do also have the option of paying cash for the difference between purchase price or appraised value. If you have that money, great. If not, and you can't get the seller to agree to drop price, and can't get the agents to kick in a bit to help, you have to walk away from the home you want, or switch to conventional loan programs and get another, hopefully higher appraisal.

So, bottom line: If you have weaker credit and no down payment, there's few better options than a VA loan, if you're eligible for them. If you have strong credit, it's possible it's not the best product for you. Shop around for a couple good loan officers and see what they have to offer, and see if they can show you which is best over the timeframe you expect you'll be in that home.

Good luck.

Answer 3

My husband is a veteran and we are using the VA Loan for the second time now. If your husband is still in the service, I am not sure what papers he would need. My husband needed his DD214 (i think that is the #, but it is basically discharge papers) and a certificate of eligibility. Your lender can obtain the certificate of eligibility for you, but I do not know what is involved in having the mortgage company do this.

Benefits of the loan: you can fold in your closing costs and no mortgage insurance (since is it backed by the VA).

Depending on your situation you might be able to get a better interest rate if you were to go with a conventional or FHA loan. The FHA loans require little down (I believe it is still 2.5%) and you can ask the seller for assist in closing costs. Some companies will still do 100% conventional financing.

I would suggest getting the interest rates from a lender for the different programs. If this is going to be your first home, do not forget to ask for first time buyer programs. If you work with a Realtor, they should be able to recommend 2 or 3 lenders they have worked with that can get you the best deal for your particular situation.

The paperwork is really not much different than the other types of loans. My brother used a VA loan to buy his first property, and he did not have problems either.

Answer 4

VA loans are an excellent option for some borrowers and not as good for others, just like any loan product.

VA loans are guaranteed by the Federal Government and the borrower finances the VA funding fee as a part of their loan amount, similar to the way the FHA loan guarantee is financed on FHA loans.

VA loans aren't any more difficult than any other loan nor are they less profitable for the lender. They used to be more difficult and time consuming due the the VA appraisal process but that has greatly mitigated in the last few years.

Some seller don't like VA loans since they are required to pay some of the buyer's closing costs that they are not required to pay on other loan products.

The interest rates on a VA loan are very close to that of any other fixed rate loan and the loan fee is limited to 1% so some brokers will charge a higher rate to get a higher fee but a reputable lender will treat you fairly.

I'd be happy to answer any further questions you might have, feel free to email me.

Answer 5

The VA loan is basically a preapproval for a loan from any number of banks. You technically can't view a home to buy unless you are pre approved for a loan. The VA loan is the preapproval, plus you get a lower interest rate.