VA Loans, You Kept America Secure, Now You Deserve The American Dream.

VA Loans, You Kept America Secure, Now You Deserve The American Dream.

VA loans are earned with service, and every member of the military, past and present deserves the best service we can provide in return when looking for a new home.  Living a transient lifestyle is something that members of the armed services must deal with as they are faced with deployments that frequently require movement from base to base within the United States and internationally.  This can add a tremendous amount of stress to service members  and their families as they try to plan for their future. 

Congress initiated the VA Loan program in 1944 as part of the Servicemen’s Readjustment Act.   Since its inception, over 18 million home loans have been insured by the United States government.  Termination dates related to the loan program were eliminated in 1970 thanks to the Veterans Housing Act, and further expansion to the benefits came as part of the Veterans Housing Benefits Improvement Act in 1978.  VA loans were initially only available to veterans who had served during specific time periods.  This changed with the Veterans Home Loan Program Amendments of 1992, which made loan benefits a possibility for members of the National Guard and Reserves who had served honorably for a minimum of six years.

There are many advantages a VA loan may bring to the table if you qualify.  First and foremost is the ability to buy a home with no down payment.  An additional financial benefit comes with VA loans not requiring Private Mortgage Insurance (PMI).  PMI is can be a requirement on loans if a home is purchased with a down payment lower than twenty percent, which can add several hundred dollars a year to the cost of buying a home.  Another feature VA loans can give service members and veterans is a sense of security.  The U.S. government guarantees every VA loan with an agreement to pay approximately one fourth of the borrower’s mortgage if the loan defaults.  

VA loans can be used for a variety of purposes, such as to purchase an existing home, or new construct.  It  can be used to buy and repair a home at the same time, or just to repair a home. Other possibilities include refinancing an existing VA-guaranteed or direct loan, and purchase of a single-family residential unit in a VA-approved condominium development.  A veteran could even buy a farm if it is to be used as their residence.  Residency is an important limitation to VA loans to remember.  The loan may not be utilized in the purchase of rental properties, or land lots.  

To recap, and mention other notable benefits:

• No down payment required.
• No PMI required.
• Government backed guarantee.
• No penalties for pre-payment.
• Sellers may pay as high as 6% in closing cost.
• VA loans allow a higher debt-to-income ratio than a conventional loan.

Understanding and Overcoming Hurdles

Occupancy:

VA loans do require that the borrower lives in the property as their primary residence.  Basically this means that the home cannot be home with the intent to use it as a rental or vacation property.  However, this does not mean that you will never be able to rent the property.  Relocation is a simple fact of the military lifestyle, and you are allowed to rent out a property after you have occupied it.  Often members of the military will maintain ownership and rent properties after they have received a PCS, Permanent Change of Station.  Depending on the circumstances, it is also possible to have more than one active VA loan at the same time.  

Credit Scores and Income:

The VA does not actually make home loans themselves.  As a borrower you will have to discuss VA loan options with your mortgage lender.  While credit score requirements for VA loans are typically lower than those needed for conventional loans, it is important to understand what score you will need.  Many lenders will require a credit score in the 620-640 range.  If your score is currently lower than this you can talk with your lender.  They can advise you on ways to improve your rating, and help make using your VA benefits a possibility.  Now that your credit rating is where it needs to be, your lender will look at residual income.  Residual income is the amount of money you have remaining monthly after all of your major expenses have been paid.  VA loans require a minimum amount of residual income to ensure the borrower is not overextending their finances.  The amount of residual income can vary geographically, and based on family size.  In the south, a family of 4 would need to have at least $1,003.00 in residual income every month that can be used for food, clothing, gas, etc. 

Appraisals:

Every home purchased with a VA loan will have to go through an appraisal process to ensure it meets the VA’s minimum property requirements (MPR’s).  These standards are put in place to ensure that the home is safe, structurally sound, sanitary, and meets standards that are considered to be acceptable in your area.  If the appraiser does find any issues with the property that could hinder the loan process, these may be remedied so the home purchase can move forward.  Realtors who are familiar with these property requirements will help you to locate homes that meet the necessary standards, or they will understand how to provide stipulations in the home purchase agreement to take care of these issues. 

Please let me know if you have any questions about VA loans, minimum property requirements, etc.