What Is A VA Loan?
A VA Loan (Veterans Administration Loan) is a mortgage that is guaranteed by the VA for veterans. VA loans have flexible underwriting and down payment guidelines for veterans and their spouses only. VA loans also have low-interest rates, no mortgage insurance, and no down payment requirements for most veterans. In addition, VA loans are also more lenient than conventional and FHA financing in many regards.
Key Components Of VA Loans
VA loans are the best bargain in mortgage financing for qualified veterans. There are some key aspects to these loans that dictate how they can be used.
LTV Max is 100%
The maximum Loan-to-Value ratio (LTV) is 100% for most eligible veterans who have not used their VA financing benefits before. With a sufficiently large seller credit for closing costs, a veteran can buy a house with no money out of pocket. VA loans allow for there to be no down payment and no closing costs out of pocket.
No “As Is” Purchases
All properties subject to VA financing are required to clear a Section I termite inspection. Termite and Pest Inspections are always required for VA loans, unlike FHA loans which can allow for “as is” purchases.
No MI Required
Mortgage Insurance (MI) is not required for VA loans, however, there is an upfront funding fee. These upfront fees vary depending on a veteran’s status and can be wrapped into the total loan amount.
Fees VA Buyers are Not Allowed to Pay
There are some fees that VA buyers are specifically not allowed to pay. Anybody can cover these “unallowable” fees, including lenders, agents, and sellers. A small closing cost credit from the seller or lender will also usually cover the “unallowable” fees.
The VA Loan Process
Using a VA loan to finance a home purchase is fairly simple and usually breaks down into these seven easy steps:
1. Verify Eligibility for a VA Loan
Before applying for a VA loan, veteran borrowers should check with the Department of Veteran Affairs if they meet all the eligibility requirements for home loan benefits. A veteran’s eligibility is dependent on the length of their service, duty status, and character of service.
2. Obtain a Certificate of Eligibility (COE)
VA Loans can be obtained through any lender of their choice, but they must have a Certificate of Eligibility (COE). The COE is an official document that shows their lender that they are eligible for the VA loan program. Veterans can acquire their COE on the Department of Veteran Affairs website in the eBenefits portal. (JVM Lending can also help walk them through this process.)
3. Fill out the Loan Application
After verifying their eligibility and obtaining their COE, they can begin the loan application process. Loan applications are standard for every loan (Form 1003), regardless of what type of loan program they are applying for. Loan applications will ask for basic personal, employment, income information, etc. (JVM offers a simplified 1003 here.)
4. Get Pre-Approved
JVM strongly encourages borrowers to get a Pre-Approval Letter before they begin the house hunt. To get a pre-approval letter, their lender will need to do a deep dive into your income, assets, and credit. We have three big reasons why we recommend their first step in home buying should be a pre-approval letter from JVM:
• Purchase Price: No one really knows that they can afford until they talk to a lender. We don’t want buyers to get set on a house that they can’t afford. Getting pre-approved first helps buyers know what price range they should be staying within when they begin searching for their home.
• Payment: There’s what buyers can afford, and then there’s what buyers are actually comfortable with. We like to find the in-between and make sure that buyers are comfortable with what will be coming out of their bank account each month.
• Offer: It’s a competitive market out there! To have an offer taken seriously, buyers need to have a pre-approval letter from a local lender that’s reputable, that has good reviews, and fast turn times (JVM can close a loan in 14 days!).
5. Make an Offer
Once a buyer find the right home, it’s time to make an offer. We recommend sellers write a strong cover letter, or even a “love letter” to the seller to enhance the offer (check out some of these love letters that have won over sellers in the past). JVM can also offer shorter contingency periods and call listing agents for buyers to provide additional information and tout their financial strength.
6. Home Appraisal
Appraisals are used to determine the current market value on a home. Appraisals are also used to determine a home’s resale value. Lenders usually require appraisals to make sure that buyer’s purchase price is comparable to the home’s worth to ensure it is sufficient collateral for the loan they’re providing.
7. Final Closing
The final closing is the last stage of the loan process! This is where buyers sign the finalized documents relating to the sale of the home and pay any additional closing costs that might be due. After, property ownership transfers from the seller to the buyer.
VA Frequently Asked Questions
Who pays what?
The VA does not allow veterans to pay for:
• Attorney Fee – if required
• Escrow Fee/Settlement Fee/Closing Fee
• Closing Protection Letter
• Document Preparation Fee
• Underwriting Fee/Processing Fee
• Lock-in Fees
• Courier Fee/Postage Fees
• Notary Fees
• Application Fee
• Tax Service Fee
• Mortgage Broker Fee
These fees amount to ~$3,000 on average but can vary.
So, how are “unallowable” fees paid for?
We actually offer a lender credit for VA loans to cover these fees. Sellers can cover unallowable fees as well, but in competitive markets, we have observed that offers are simply much more competitive when lenders cover them.
What’s the minimum down payment required?
No down payment (0% Down) is required in most cases, depending on debt to income ratios and eligibility. Here are just a few exceptions:
1) If the loan is above the County Loan Limit. For example, the Alameda County Loan Limit is $679,650. If a veteran wants to purchase a $1MM home, he/she has to come in with 25% of the difference between the purchase price and County Loan Limit, which is $80,087.50.
($1,000,000 – $679,650) x 0.25 = $80,087.50
2) If a non-spouse will be a co-borrower (e.g. boyfriend). Then, a minimum 12.5% down payment will be required.
Is there Mortgage Insurance?
VA financing requires no Mortgage Insurance, irrespective of the down payment percentage. This is a major advantage of VA financing.
What is the VA Funding Fee?
The VA Funding fee is the fee charged for all VA loans to fund the VA guarantee program. The typical fee is 2.15%, but it can vary depending on eligibility status (type of service), down payment, and other factors. The fee can be financed and included in the loan amount.
How are Termite/Section 1 repairs handled?
These repairs must be paid for by the seller, before close of escrow. Clean Pest Reports are required to close a VA deal. Buyers, however, can pay for the termite repairs if they are not billed through escrow.
How fast can we close a VA loan?
We can close VA loans as fast as 23 days, remaining competitive against many conventional and FHA offers. We also have an in-house VA underwriter, which helps expedite the process.
Questions?
While this article covers just the basics of VA financing, I can provide additional information to those who request it. I am available 7 days/week at (818) 974-4961 or FrankEnderle@me.com