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Thanks to the bravery and sacrifices of our veterans and active military, our country’s civilians can live the American dream in safety. So how fitting is it that one tangible way our country says “thank you for your service” to current and former members of the military is through the Department of Veterans Affairs home loan benefit?
These unique mortgage options allow veterans and those still serving to acquire their own piece of the American dream by potentially qualifying for homes they might have otherwise thought were out of reach.
On Tuesday night, the U.S. Senate unanimously passed HR 1815, the VA Home Loan Reform Act. The House passed the bill in May, and it now heads to the president’s desk for his signature.
Backed by the National Association of Realtors®, the bipartisan bill makes permanent a policy allowing veterans to directly pay their real estate agents—ensuring equal access to the housing market. It also establishes a partial claims program to help veterans catch up on missed mortgage payments.
“The VA Home Loan Guaranty is a unique government program that allows veterans to purchase a home without a down payment,” says Shannon McGahn, NAR executive vice president and chief advocacy officer. “We are grateful to the House of Representatives and the Senate for passing this measure and providing veterans and active-duty service members the same advantages as other buyers in a competitive real estate market. NAR remains committed to protecting the brave men and women who serve this country in the armed forces and ensuring they are given equal opportunities to achieve the American dream of homeownership.”
Veterans, active-duty service personnel, and select reservists or National Guard members are among those who can qualify for VA loans. (Find eligibility requirements here.) Wondering what some of the benefits of a VA loan might be? Here are five of the most popular features.
1. No down payment
This is one of the most valuable and touted benefits—and for good reason. Saving enough for a down payment can be the biggest obstacle to buying a home. But a VA loan eliminates that roadblock.
“Most of the buyers I work with don’t have extra resources available, so the fact that they can purchase a home with zero down makes the transaction feasible,” says Benny Dinsmore, a real estate agent with Coldwell Banker in Frisco, TX—and also a veteran.
Qualified VA buyers don’t have a down payment requirement in most cases.
But beware: The “no money down” aspect of a VA loan shouldn’t be confused with “no money out of pocket,” a common misconception, notes Michael Garcia, broker and owner of Weichert, Realtors–TQS in Lake Worth, FL.
A VA purchase transaction still requires closing costs and often includes an earnest money deposit (a negotiated amount of money that the buyer puts in escrow to essentially “hold” the house).
“However, that money will often come back at the closing, when the title company will write a check back to the veteran on the spot for the total amount that was put into escrow,” Garcia says.
2. More lenient loan requirements
The required credit score for a VA loan can be lower than for a conventional loan—around 620 for a VA loan compared with a range of 650 to 700 for most conventional loans.
In addition, the required debt-to-income ratio for VA loans is often more flexible than for conventional mortgages.
“It allows someone with less-than-perfect credit and some debt to still be able to qualify for a loan,” Dinsmore says.
3. No mortgage insurance
Most conventional buyers have to pay private mortgage insurance if they put less than 20% down. Federal Housing Administration loans come with their own forms of mortgage insurance. But a VA loan waives that insurance requirement.
And trust us—this one’s important.
“This can be a big savings in monthly payments,” says real estate agent Twila Lukavich, with Russell Real Estate Services in Cleveland.
Even though there’s no mortgage insurance, there is a “funding fee”—an upfront cost applied to every purchase loan or refinance. The proceeds help the VA cover losses on the few loans that go into default. But borrowers can roll it into their monthly payment, or pay it all at once. Plus, it’s tax-deductible. And veterans with a service-connected disability and select others don’t have to pay the funding fee at all.
4. Limited closing costs
Legally, veterans might have to pay for certain closing costs, which include the following:
- Credit report
- Origination fee
- Recording fee
- Survey
- Title insurance
But there are some fees that veterans don’t have to pay. And the VA allows lenders to charge no more than 1% to cover the costs of originating and underwriting the loan.
Furthermore, even those costs can be rolled into the loan. So, for example, if the purchase price is $280,000, the veteran might offer $300,000 and ask for 3% back to cover the closing costs.
“In this way, the veteran is essentially financing their closing costs into the loan, meaning less out of pocket at the start,” Dinsmore explains.
5. Extra assistance with appraisals
When a home that a veteran is considering purchasing is having trouble reaching the purchase price during the appraisal process, buyers and lenders can ask the VA appraiser to consider adjusting the valuation before making a final determination.
Appraisers notify lenders in the event the appraised value is likely to come in low, giving buyers and real estate agents 48 hours to supply additional information that the appraiser might not be aware of to help justify the home’s value.
“Typically, I assemble an itemized list of upgrades and improvements that the seller has performed on the home in the past three years that the appraiser didn’t know about, and therefore didn’t include in the home value,” Lukavich says.
This process “gives the agents an opportunity to assist the appraiser in making sure they have the whole picture of the home and gives the local agent an opening to help an appraiser be educated on specific local values,” she adds.
It’s just another benefit of VA loans aimed at helping our service men and women buy the home of their dreams.