Buying a home includes lots of steps and tasks. One of the very first tasks is to get pre-qualified for financing, unless you are paying cash. The next question is, what lender do I go to? Well it is always good to start with smaller, more locally held banks. Hi, I’m Sherri Echols, Broker Associate with RE/MAX Bryan – College Station. If you are a service member or a veteran, look for lenders who also handle VA loans. Your Realtor should be able to give you some direction on this, especially if you are relocating from another area. The next step with the lender is deciding which type of loan is best for you and your situation. If you are eligible for a VA Loan, there are some pros and cons you should consider. It is the very best choice for some, but not so much for others. Let me go over some of the pros and cons for you. On the UP side, No down payment is required for those who qualify for VA funding! FHA loans require 3.5% down and for many conventional loans the minimum down is 5%. To avoid paying Private Mortgage Insurance (PMI), buyers need to put down 20% of the purchase price. This leads to the second item on the pro list for VA Loans – there is no PMI! Another giant plus for VA Loans is the Debt to Income ratio is more relaxed. They look at a ratio of what you make to what you owe and the VA allows 41% or less. If you are applying for a conventional loan this ratio has to be lower. And in some cases, qualified borrowers with a DTI ratio of HIGHER than 41% are still able to secure VA funding. There is no prepayment penalty on a VA Loan. And the VA Home Loan program has some great refinance options – to lower the monthly payment by reducing the interest rate – the Interest Rate Reduction Refinance Loan, or to take some equity out for improvements or whatever you desire – the VA Cash-Out Refinance. But carefully consider refinancing before you leap, it could increase the finance charges you pay over the life of the loan. And the final pro I am reviewing today is that if you have had to file bankruptcy or have had a foreclosure, check with a lender. Some borrowers who qualify may be eligible to buy again within 2 years. The wait is much longer for more conventional loans.
Now let’s look at a few Cons regarding VA Home Loans. They aren’t the best option for everybody. First of all it’s an exclusive group of people who are able to use the program. VA Home Loans are only available to eligible service members who have served our country in any brand of the United States Military. Spouses of veterans who have died in the line of duty or passed away as a result of a service-related disability may also be eligible. Another con that may sway your decision is the VA Funding Fee. All VA loans come with a funding fee, it is like paying it forward in that that money goes back into the program to help keep the VA Home Loan program running for future generations. You can finance the cost into the loan, and buyers with service-connected disabilities are exempt from paying the fee. The funding fee isn’t a thing for conventional and FHA loans. Another reason a VA Home Loan might not be the best fit is that they are intended for your primary residence. That means the house you live in most of the time. They can’t be used for second homes or for investment property. The last con we are covering today is that some sellers are leery of accepting a buyer who intends to use a VA Loan. Historically VA loans took some extra time, but they have been working on the system and have really improved it in several ways to streamline the process. So this is becoming more of a myth than a fact. Another is that they require the appraiser to inspect for Minimum Property Standards while they also determine the value of the home. An example that would cause a potential delay is if there is some sort of wood destroying insect problem. With a VA loan, the infestation must be treated and damage repaired before closing. Watch my video on Minimum Property Standards for more information. If you are thinking of buying and have questions about VA Loans, reach out to me by pressing the message me button below and I will tell you what I know and direct you to the best VA Lenders in the area! I’m your Community Market Leader Sherri Echols, a helping hand for a happy home.