Shopping for the best mortgage option is a fundamental first step in the home-buying process. If you or a direct member of your family are in the military or a Veteran, the VA offers a competitive loan program that may be a great option. You'll want to compare long term costs, loan entry benefits and property requirements with other loan programs with a professional mortgage broker or a Bank/Credit Union loan officer. But here are the basic details of a VA Loan to start the process.
VA Loan Mortgage Requirements
A big benefit to a VA Loan is that they offer 100% financing. This means that it is possible to get started without a downpayment. The VA Loan program will also allow you to ask sellers to contribute up to 4% of loan value toward closing costs. Closing costs include but may not be limited to lender fees, pre-paid taxes and insurance payments and transfer taxes. 4% on $200,000 loan equals $8,000. If closing costs can be negotiated into your purchase, this will also allow you to get started as a homeowner without surplus savings.
LOAN LIMITS: Be aware that depending on property location, there may be a limit on the total amount you can borrow with 100% financing (this is called a conforming limit). If you want to purchase above the conforming limit, some programs will ask you to pay 25% of the difference between the sale price and the conforming limit. This still makes a big difference in upfront affordability for Veteran homebuyers.
VA Loan Property Requirements
VA Loan programs, like all Government Loan options, include specific requirements regarding the condition of the property a borrower chooses to purchase. The intent of these requirements are to ensure the property is safe and free of costly deferred maintenance in the first years of ownership. Properties must be certified as pest free (in some locations) and in cases of private water supply, a test must be provided ensuring the water is safe. Common repair items to look out for that must be completed before closing include: Chipped/Peeling paint and/or missing siding, installed safety railings, missing flooring, holes in walls, rotted window sills. Roof and heating systems must be in good condition and have at least a 3-year remaining life span.
CONDOS: Not all condominiums are approved for funding through the VA Loan Program. Approved Condos are listed here: https://vip.vba.va.gov/portal.VBAH/VBAHomes/condopudsearch.
When researching the best loan option for your situation it is important consider long term costs. 100% financing is helpful if you have limited cash up front, but it can result in higher monthly payments. Most lenders will require you to pay Private Mortgage Insurance (PMI) until you have 20% equity in the property. You will also pay more in interest over the long term. Your VA Loan also may, or may not offer the best interest rate at your time of purchase. If you have cash available to contribute, check with your mortgage lender or bank loan officer to review interest rates in comparison with conventional loans or to review the benefit of contributing to the purchase though the VA Program.
WORD to the WISE: Monitor your own investment! Often, what you are eligible to borrow, may be more than you can ultimately afford based on how you manage the rest of your finances. Ask your lender to fully clarify all the costs of the loan and what will be included in your monthly payment. Check those costs and payments against your monthly income and expenses today. Seek professional advice with any questions. Once you are clear about what you can afford, find your new home!