Almost Half of U.S. Veterans Don't Know About VA Home Loans
If you could get a mortgage -- today -- that required no money down, no closing costs, was forgiving of past credit issues and was even flexible about your debt to income ratio, would you jump on it?
Of course you would! That’s why it’s so alarming that, according to the IAVA 2017 Annual Member Survey, 42% percent of military veterans haven’t used their eligibility for a VA home loan. There are plenty of rumors responsible for this lack of utilization, but most of the things eligible borrowers hear when considering VA loans are myths birthed from rare bad experiences.
VA Myths Unveiled
Getting a mortgage can create a really stressful time in your life, but it’s doubly difficult when you hear a lot of negatives about a program that sounds too good to be true. For members of the military or military veterans with a VA loan entitlement, VA home loans can be a really great deal if you can sort the truth from the hype. These myths are just a few that keep eligible veterans from electing an excellent loan option: the VA home loan.
VA Loan Myth #1. You need excellent credit to qualify
VA home loans are among the most forgiving for both credit scores and debt-to-income ratios. Rather than just looking at credit scores, lenders examine the credit record of a borrower to see how they deal with paying obligations on time. VA Pamphlet 26-7 includes all the dirty details, but essentially, if you’ve not had a late pay in the last 12 months (for people without a bankruptcy or foreclosure), you’re probably OK on the credit side.
For borrowers with previous bankruptcies, a two-year waiting period is in force, unless you can somehow quickly re-establish your credit and demonstrate 12 months of good payment history. Foreclosures are considered on a case-by-case basis, just like debt-to-income ratios for VA loans.
VA Loan Myth #2. Entitlements are a one-time thing: use it and lose it
For some reason, this myth about entitlements continues to persist in the world of VA loans. Your entitlement is yours for as long as you’re around, and it can sometimes even be used by a surviving spouse.
The only catch is that you can only use it on one house at a time. So, if you buy a house using your entitlement and it swallows up the whole of it, you can sell that house and buy another and the entitlement will simply transfer to the new place.
The only time you may lose your entitlement (temporarily) is if you sell your home and let the buyer take over your VA loan. When a new buyer assumes your old loan, they either have to use their entitlement so yours can return to you immediately -- or they’ll slowly pay yours down as they pay off the note, and it’ll trickle back to you bit by bit. However, it’s a bad idea to sell a home with a VA assumption to anyone but another military vet.
VA Loan Myth #3. VA loans are expensive
This is both true and false. While funding fees for the VA loan can be higher than other similar loan fees (as much as 2.15% of the loan for first-time borrowers), other fees are tightly controlled. Generally, this evens out, making the VA loan a fairly inexpensive mortgage, as they go. You also won’t have to worry about things like mortgage insurance over the longer term, which provides huge savings. If you’re a disabled veteran, you may be eligible to have your funding fee waived entirely.
VA Loan Myth #4. The rates are the same as other loans
Conventional, USDA, and FHA loans all have pretty decent rates despite projected rate hikes, but the Department of Veterans Affairs found that VA loan rates are typically 0.25% lower than other mortgage types. This is because your entitlement guarantees a large percentage of your loan. And it also doesn’t hurt that VA loans have the lowest default rates, either!
VA Loan Myth #5. VA loans take a lot longer to close
While it’s true that a VA loan requires a much more thorough examination of the home you intend to buy, this doesn’t mean it has to take forever to close. By choosing a Realtor who is familiar with the VA loan process and a lender who works closely with VA borrowers, the whole thing can be quite smooth. In January 2018, the average VA loan required 50 days to close, only two days longer than the average FHA loan.
VA Loan Myth #6. Conventional loan programs are just better
There’s nothing wrong with a VA loan. In fact, they offer superior terms in almost every way when compared to any other loan out there. This is because members of the military have earned their entitlements, which are later used to back the loan. VA loans are cheap, they’re low maintenance, and once you’ve closed, nothing will change except your insurance and taxes. What’s not to like?
Daniel Goldstein, a personal finance reporter for MarketWatch, speculates that this attitude prevails because many lenders don’t want to issue VA loans. They don’t make a lot of money on them and there is a lot more paperwork on their end. Still, it’s an unfair situation when an expert steers veterans away from VA loans simply because they’re harder to process.
Ready to Have All Your VA Fears Put to Rest?
VA loans are an excellent option for anyone who is eligible. It’s the exclusivity, in part, that makes them so great. Since they’re a low-risk product for lenders, VA home mortgages always have very attractive rates and terms. If you want to chat more about VA loans so you can figure out if they’re right for you, contact us here at Home.Loans.