An essential element of finding the right mortgage financing for your personal circumstances is to know about all of your options. If you’re an active duty serviceperson in the military, a veteran, a reservist, a member of the National Guard or a surviving spouse of someone in one of those groups, you may be eligible for one of the best mortgage finance options available: a VA-guaranteed loan.
“The first thing a lender or a real estate agent should do is ask someone if they’ve ever served in the military,” says John Bell III, the deputy director of the loan guaranty service for the Veterans Affairs Department. “The main benefit of the VA loan program is that borrowers have the option of making no down payment or a low down payment, depending on their eligibility.”
Borrowers can choose to save their money for moving, furnishing a new home or for emergency savings, says Bell.
VA-guaranteed loans do not require any mortgage insurance premiums, either upfront or monthly. In addition, the VA limits the fees and charges lenders can add to a VA loan, which also saves money for borrowers.
However, VA loans do require a funding fee, which varies from 1.25 percent of the loan amount for buyers who make a 10 percent down payment to 2.15 percent for buyers who make a down payment of 4.9 percent or less the first time they use a VA loan guarantee. The fee can be as high as 3.3 percent on subsequent uses of the VA loan guarantee. The good news is that funding fee doesn’t have to be paid in cash: it can be rolled into the mortgage.
“If you’re in the military, you can go directly to a lender, to a regional VA office or online to get a Certificate of Eligibility,” says Bell. “Lenders are equipped with the ability to help veterans navigate the VA loan program.”
More than 96 percent of eligibility certificates are issued online and 65 percent of applicants receive instantaneous eligibility approval, says Bell.
Improvements to the VA loan program
Since the VA Home Loan program’s inception in 1944 through 2018, the VA has guaranteed over 23.6 million home loans and currently has more than 3.1 million active loans, according to the VA department.
Approximately 10 percent of all new home loans today are VA-guaranteed loans, according to the October 2018 Mortgage Originations Insights Report from Ellie Mae.
“The VA department has made a tremendous effort to improve the efficiency of the VA loan program and our volume of loan guarantees is up 105 percent since 2011,” says Bell. “Our closing times are now in line with other loan programs, our interest rates are competitive and our closing costs are low.”
In the past, some borrowers were discouraged from taking out a VA-guaranteed loan because of the misconceptions that they take longer to close and that the appraisal is more complicated, says Bell.
“Our appraisal process includes a requirement that the home can’t have major defects,” says Bell, “but that just means you can’t have a hole in the roof or something like that. It’s a protection for our military members and veterans.”
The VA has focused on reducing appraisal wait times and greater education about the loan program for lenders, real estate agents and eligible borrowers.
Qualifying for a VA loan
In addition to receiving a Certificate of Eligibility, VA loan borrowers must qualify based on their assets, income and credit history, like any other loan program. The median income for VA loan borrowers who purchased a home in 2018 was $77,124, while the median loan amount was $269,861.
“Our borrowers are well-qualified and in fact, over the last 42 quarters, VA loans have been performing better than any other loan program,” says Bell. “VA loans have had the lowest percentage of foreclosures and the lowest percentage of serious delinquencies over that time period.”
One reason for the high success rate of VA loans is that the VA department provides a second source of support for borrowers if they’re having financial difficulties, says Bell.
“VA counselors can mediate and advise borrowers in addition to working with their lenders,” says Bell.
As of 2017, the VA estimates that there are 20 million veterans in the U.S. The VA loan guarantee program is one important way the government seeks to thank those men and women for their service and to provide them with financial stability.