How does a VA loan work?
The VA home loan has many benefits for active service members, veterans, and their surviving spouses.
The Department of Veterans affairs does not make home loans. Lenders make the loans, and the VA guarantees them against default. This guarantee gives lenders the confidence to finance 100% of the purchase price. The VA Funding fee, typically financed into the loan amount, is the “insurance” that the VA uses to pay for any losses in foreclosure. Some veterans are exempt from this fee.
The process and steps for applying for a VA loan are like a conventional home loan although providing easier qualifications and additional consumer protections.
What are the benefits of a VA home loan?
- No down payment
- No monthly mortgage insurance
- Limited closing costs
- Lower interest rates
- Seller, relatives and interested parties may contribute to closing costs up to 4% of the purchase price.
What are the qualifications for a VA Home Loan?
VA home a loan program does not have the traditional income and credit requirements that conventional loan have. In fact, the VA loan program does not have debt to income ratio limitations. However, lenders do limit their exposure to risk by applying additional restrictions over the minimum VA guidelines such as credit score requirements and debt to income ratio limitations. Mortgage brokers typically will have access to multiple lenders offering VA loans. This allows the Mortgage Broker to match you to a lender without those prohibitive restrictions. Not to mention rates and fees are with mortgage broke are typically much lower. A Mortgage Broker is very often the best source to fit your specific VA home loan needs.
What are the steps for a VA Loan?
- Obtain your COE Certificate of Eligibility
- Provide your income and asset and ID documents.
- Get a pre-qualification letter
- Shop for a home
- Sign a purchase contract
- The application is sent to underwriting
- Get a home inspection- recommended (condition of the home)
- We order the VA appraisal and pest inspection
- Shop for homeowner’s insurance and we help with this process
- Provide any additional documents the underwriter request for final approval while waiting for the appraisal and title work.
Once the loan is final approved:
- You would have received a final Closing Disclosure is list of closing costs prepaid interest, one year insurance premium the required escrow balance with the exact fees any credit from the seller or interested parties.
- Prepare to wire any funds if any to the title company for the closing.
- The lender wires the loan funds to the title company
- Sign the closing documents, normally at the title company location
Move into your new home!
How to do I get a certificate of eligibility
You may obtain it online at VA.gov or we can do it for you through lenders portal, WEBLGY.VA.gov portal. If it is not available online, we call the VA and normally with some additional steps the COE is issued while we are on the phone with them.
What is the VA funding Fee?
The VA funding fee is a percentage of the loan amount paid by the veteran to “insure” the loan against default. This reduces the cost to U.S. taxpayers since the home loan does not require monthly mortgage insurance. Some veterans are exempt from paying this fee such as veterans receiving disability payments and active-duty purple heart recipients. The COE determines if the Veteran is exempt from the VA funding fee.
The fee can is paid in one of two ways:
- Include the fee in the loan amount and finance it over the term of the loan. This method
- The veteran may opt to pay the fee as part of the closing costs
Things to know about a VA Appraisal
Conventional loans sometimes allow the buyer to wave the appraisal. However, the VA requires an appraisal on all purchase loans. The exception is the VA IRRL or streamline refinance. The appraisal is ordered through the VA portal. In turn, it is assigned to an in-market VA appraiser.
The appraiser has up to 10 days to compete the report. Some exceptions are allowed. The appraisal determines fair market value, and the home inspection reviews the condition of the home.
The VA appraisal has two purposes.
- To determine the fair market value of the home. The appraisal ensures the buyer is not overpaying for the home. In addition, it prevents the lender from putting the buyer in an upside-down position.
- Ensure the property meets VA minimum property requirements (MPR) These guidelines ensure the home is safe and is move in ready.
A VA certified appraiser is assigned the task whom is familiar with the market area. The appraiser normally has up to 10 days to complete and provide the appraisal. However, there are some exceptions to this rule.
What happens if the appraisal comes in low?
You have several options:
- Your agent can negotiate the purchase price down to the appraised value.
- You may pay the difference between the appraised value and the agreed purchase price or reduced price that may still be over the appraised value
- You may back out of the contract
Note: (Guidelines require the base loan amount, excluding the funding fee, is based on the lower of the purchase price or appraised value.)
What happens if the home does not meet the minimum MPR?
Your agent will notify the seller and the seller may agree to repair the deficiencies prior to closing or may provide funds to be placed in an escrow account to repair them after closing or you may also cancel the contract
Why get a home inspection?
The advantage of a home inspection is to find if the home needs repairs that you feel are required. The inspector detects problems with electrical, plumbing, roof and estimate remaining life of the roof, HVAC as well as a structural review.
- A home inspection reviews the condition of the home
- A home inspection provides reports you may provide to homeowners Insurance companies if they request them.
What happens if the inspector finds a problem?
Your agent can negotiate with the seller make repairs prior to closing, negotiate the price of the home down or you may back out of the contract provided the contract has an inspection period and your decision is within that period.
What is the process to get homeowners’ insurance?
Insurance companies want to know their risk when insuring a home. Inspection reports may be required to document the condition of the home, the building codes when it was built, and if any updates to systems were completed or updated to newer codes.
In addition, with Florida being high risk for hurricanes, a wind mitigation report may be required. The inspection verifies wind protections the home has such as shutters, impact windows, impact rating of doors and garage doors and a review of the roof. The more the home has in protections the less the premium will be. A home of a certain age may require a separate report to verify the condition of 4 systems that are electrical, plumbing, structural and roof systems.
Two reports the insurance company may need are:
- Wind mitigation report
- 4 – point inspection
A new home may not be required to have the above reports if it is a newer home.
Why do I need a pest inspection?
The VA wants to ensure you are buying an acceptable and safe home. They require an inspection to detect if there are active wood destroying organisms. A wood destroying organism report is required (WDO report), commonly referred to as termite report. If the report shows active WDO then treatment by a licensed pest company may be required prior to closing the loan. Damage from WDO is also noted on the report. If damage is reported, the underwriter will determine if repairs are required, or further inspection is needed. Your agent and loan officer will walk you through this process. Termites are common and often this is a standard non-event.