Just starting your home-buying homework? Still in service, or separated? You’re probably thinking about a VA loan.
Active-duty members as well as veterans generally qualify for a VA loan, though the Veterans Affairs Department doesn’t make the loans: It guarantees them, which minimizes lenders’ risks and reduces their losses in the event of a foreclosure. The lenders set the interest rate.
Here are some reasons to consider a VA loan, not necessarily in order of importance.
1. No down payment required. Most lenders require a down payment of at least 3 percent of the home’s purchase price, according to Bankrate.com. On a $200,000 loan, that’s $6,000 due up front.
2. No PMI. Many lenders require private mortgage insurance if you make a down payment of less than 20 percent of the purchase price. The most common way to pay for PMI is through a monthly premium, added to your mortgage payment. VA loans don’t require it.
3. No minimum credit score. Instead, VA requires a lender to review the entire profile of the borrower in making a lending decision. On average, those who qualify for VA loans have lower credit scores than those who apply for conventional loans, according to data in the Ellie Mae Origination Insight Report. In September, the average credit score for veterans who had closed on a VA loan that month was 709 for home buyers and 701 for refinancing; for those using conventional loans, those figures were 752 and 731, respectively.
(Get more from Ellie Mae, as well as some myth-busting VA loan details, here.)
4. No maximum debt ratio. However, if the ratio is more than 41 percent of income, the lender must provide information about factors that could compensate for that gap.
5. No loan maximum. There are, however, limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend. The loan limits vary by county, because the value of a house depends on the location, and change over time.
Veterans can borrow up to $424,000 without a down payment in most areas of the country. The 2017 loan limits are the same as the Federal Housing Finance Agency’s limits, which can be found here.
6. Safeguards in place. There are guidelines to ensure veterans have the capacity to repay their mortgage and other debts while accounting for all living expenses. There are also minimum property requirements to ensure the property is safe, sanitary and sound.
7. Fighting off foreclosure. There are VA staff members dedicated to helping veterans who become delinquent on their loan. In 2016, these staff members helped 97,368 borrowers avoid foreclosure. There were 18,519 foreclosures. “It’s a start-to-finish program for us, not just close the loan and we’re out,” said Greg Nelms, chief of loan policy for the VA home loan program.
For complete information about VA home loans, visit http://www.benefits.va.gov/homeloans/. Take our quiz on the home loan benefit here.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.