Buying a house with VA loan may seem daunting, but with just a few tips it will seem more achievable. VA loans offer benefits to veterans, service members, and eligible surviving spouses to purchase a home. VA loans are a lifetime benefit.
Whether this is your first home with a VA loan or you’re applying for a new VA loan for your second or third home, we’ve got you covered on the steps to get a loan and how to prepare to get the most benefits.
What is a VA loan?
A VA loan is a mortgage issued by a private lender and guaranteed by the Department of Veterans Affairs. The purpose of a VA loan is to help veterans, service members, and eligible surviving spouses to purchase homes.
Using a VA loan, the VA will guarantee a portion of the mortgage, making it possible to secure more favorable terms.
How do VA loans work?
A VA loan is different from a traditional loan in that the VA will not loan funds to the recipient directly. Instead, the VA guarantees a portion of a mortgage. In reality, a VA loan is a loan guarantee. This results in lower total costs.
Some of the main benefits of a VA loan include no down payment, lower closing costs, and lower interest rates. With a VA loan you also won’t need private mortgage insurance.
Benefits of VA loans
There are many benefits to a VA loan. These include cost savings both at closing and in monthly mortgage payments. Here are some of the main benefits:
- No down payment: The VA does not require a downpayment. Some lenders may require a downpayment from some borrowers, even while using the VA loan guarantee.
- Lower closing costs: The VA states that one of the benefits of a VA loan is limited closing costs.
- No mortgage insurance: With a VA loan, you will not be required to purchase private mortgage insurance (PMI) even with no down payment.
- Favorable Terms: A VA loan is guaranteed by the federal government, which means that the terms are generally very favorable. This includes competitive, low interest rates.
- Lifetime benefit: VA loan benefits can be accessed multiple times to purchase more than one house over a lifetime.
- Assumable mortgage: VA loans are usually assumable, which means you can transfer the mortgage to another home buyer if they are VA eligible. With increasing mortgage rates and home prices, this can be an attractive option.
Are there income requirements for a VA loan?
The VA does not limit income for qualified buyers. While other government-guaranteed mortgage programs may have maximum income limits, the VA does not.
5 tips on buying a home with a VA loan
If you are a qualified VA borrower, here are the tips to buy a home with a VA loan. With these tips, you’ll have the support and resources you need to easily purchase a new home.
1. Select a VA approved lender
Be sure to choose a lender that has experience working with VA loans. Lenders should be VA approved. Here are some of the best VA approved lenders.
2. Apply for a certificate of eligibility
You will need to apply for a VA-backed home loan certificate of eligibility to prove that you meet initial-eligibility standards for a VA home loan. This can be done online or through the mail.
3. Work with a real estate agent with experience
VA loans have special requirements. The VA requires properties to meet specific criteria and be in good repair. Condos and properties that are part of an association will also require VA approval. A real estate agent experienced with military personnel can help you locate the best properties for your needs and meet VA requirements.
4. Decide how to pay closing costs
Closing costs are usually anywhere from 3% to 5% of the property value. These costs can include attorney fees, appraisal costs, taxes, and real estate commissions. There is also the VA funding fee, which is a one-time fee paid to the VA for guaranteeing the loan. For buyers who put down less than 5% of the loan amount, the VA funding fee for using a VA loan is 2.3% for first-time homebuyers.
There are several ways to pay for these costs:
- Roll the funding fee into the loan: One option to discuss with your lender is to build the VA funding fee into the total loan amount. That means for first-time buyers that the loan amount will be 2.3% higher than the property value.
- Ask the seller to pitch in: Sellers may be willing to cover the closing costs or VA fees to facilitate closing During negotiations, ask the seller if they can cover closing costs as part of the agreement.
- Find out if your lender is willing to cover closing costs: In some cases, the lender may agree to cover the closing costs as a part of the loan.
- Seek closing cost assistance: Every state offers closing cost assistance programs. There is also local closing cost assistance available in some areas. Different rules apply to closing cost assistance programs, but your realtor may be able to advise you on the best local options.
5. Preparing upfront cash helps
Although VA loans don’t require a downpayment—and some sellers might help with closing costs—having some upfront cash can help you sidestep certain fees and obtain the most favorable loan terms. Cash reserves can also assist you in affording unexpected expenses that may come up after purchase.
Increased approval odds
Lenders will check your cash savings to make sure you are financially stable enough to purchase a property. Building up your savings before purchase will increase the probability of loan approval.
Pay the earnest money deposit
Earnest money is a deposit you will need to make before finalizing the purchase. This is usually 1% to 3% of the property value, or a set amount agreed between buyer and seller. This money will be deposited in escrow until the sale is completed. Depending on the agreement, if the sale does not go through, the earnest money will be returned to you.
Cover moving-related expenses
It is a good idea to have some cash set aside for moving expenses, home repairs, and other unexpected expenses. Building savings before the house purchase will fulfill all goals at once: you’ll have the earnest money and moving costs, and you’ll increase your chances of getting approved.
Buying a house with a VA loan can be easy
With a VA loan, service people, veterans, and military spouses are more easily able to accomplish homeownership at more affordable rates. These government-backed guarantees open the door to better interest rates, low or no down payments, and absolutely zero need for private mortgage insurance.
The VA home buying process is a well-tread path. You will need to obtain a certificate of eligibility before you can get a VA loan.
But once you have one, you can expect VA loan closing times to be similar to other mortgage closing times, which are usually anywhere from 40 to 50 days. With a VA loan, you may be able to get the home of your dreams with lower monthly costs and better overall terms.
FAQ
How long does it take to buy a house with a VA loan?
It takes 40 to 50 days to close on a VA loan. This is also the average closing time for other mortgages
Do I pay closing costs with a VA loan?
Closing costs for a VA loan can be paid from savings, with closing cost assistance, or by negotiating with the seller to cover the closing costs. In some cases, the lender may also cover the closing costs or include them in the loan amount.
Is it hard to buy a house with a VA loan?
No, it is not difficult to buy a house with a VA loan. While you do need an eligibility certificate, the backing of the VA will help ensure the most favorable loan terms.
