If you’re eligible for a VA loan there’s probably no better option for you if you want to come to your closing with as little cash as possible.
Who is Eligible
If you’re not sure if you’re eligible for a VA loan or someone you know is wondering, eligible borrowers include veterans, active duty personnel with at least 181 days of service, National Guard and Armed Forces reserve members with at least six years of service and unremarried surviving spouses of those who have passed while serving or as a result of a service related injury. Home buyers can contact the VA directly to obtain a document called the Certificate of Eligibility, or COE. This form is the only source lenders can use to determine eligibility. You can write a request to the Department of Veteran’s Affairs or visit one of the VA’s regional centers but the easiest way to get this certificate is to have a VA approved lender make the request. Such lenders have access to an automated system that retrieves this important document for you with just a few keystrokes.
VA Loan Basics
A VA loan is a government-backed loan which means the lender is compensated at 25% of the loss should the loan ever go into foreclosure. This guarantee is financed with what is referred to as a Funding Fee. First time buyers taking out a 30 year VA loan will find the funding fee is 2.15% of the initial loan amount but does not have to be paid for out of pocket as this fee is rolled into the final loan amount. With a zero down $300,000 purchase, the funding fee is then $6,450 for a final loan amount of $306,450. And unlike other government-backed mortgage programs, there is no additional monthly mortgage insurance payment required, keeping payments low while increasing borrowing power.
The VA program also limits the types of closing costs the borrowers are allowed to pay. VA borrowers can only pay for an appraisal, credit report, title insurance, origination fees, survey and recording fees. All other fees must be paid by the sellers of the property or obtain a credit from the mortgage company.
Borrowers can also choose between a fixed VA loan and an adjustable, or hybrid mortgage. Loan terms can range anywhere from 10 to 30 years in five year increments. Adjustable rate loans can be selected with adjustments once per year or come in the form of a hybrid mortgage. A VA hybrid is an adjustable rate loan that is fixed for a predetermined period before turning into a loan that can adjust periodically. Interest rates for VA loans are also very competitive.
When one considers eliminating the down payment requirement, limiting closing, costs, no monthly mortgage insurance and competitive rates, for those who do want to get a good rate while at the same time coming to the settlement table with as little cash as possible, the VA home is the ideal choice.