VA Home Loan Benefits
REAL ESTATE FOR VETERANS
VA Loan Benefits
Peter Van Brady
Founder of SoCal VA Homes
Author: Avoiding Mistakes & Crushing Your Deals Using Your VA Loan
VA Home Loan benefits offer active military and Veterans a unique opportunity to pursue their ideal home. Since the VA loan benefit became available in the 1944, more than 22 million Americans have taken advantage of the program. In spite of the popularity of these home loans, many who may qualify for this one-of-a-kind financing tool don’t explore the possibility of using it!
What Are the Benefits of a VA Loan?
The benefits of a VA home loan are extended to active military service members and veterans who meet VA loan requirements. VA loans offer FAR MORE flexible underwriting and other distinct, powerful features”
Key advantages of the VA home loan include:
- Zero down payment
- No PMI (Private Mortgage Insurance)
- No minimum credit score requirements
- Lower interest rates than conventional loans (because of the government Guaranty)
- No Closing Cost options
Because there is no down payment required or minimum credit score threshold to be met, Veterans utilizing their VA loan benefit can explore exceptional options for home buying, including allowing renovations in the process or buying land and constructing a new home.
However, not every home on the market will qualify for a VA loan. Properties are often required to be move-in ready, without deferred maintenance, so turnkey homes are best when using a traditional approach to funding a VA loan with your benefit.
There are many misconceptions about VA loan benefits. Though they are available through a government Guaranty, VA home loans are only offered by private lenders – private “for profit enterprises,” not through the Department of Veterans Affairs. The VA does not control the rates, Wall Street ultimately offers the rates through the securitization process of GNMA bonds. These securities are the final destination for the funded VA loans as they enter the loan servicing stage.
Many would be VA borrowers think you need a 620 credit score to qualify for a VA home loan – this is also a common myth. Even Veterans with recent bankruptcies in their credit histories can qualify. Many also believe that utilizing your VA loan is only for first-time homebuyers. In fact, VA loan benefits never expire and can be used again for each new property you buy, so long as your VA loan entitlement can accommodate the new loan request.
Benefits of a VA Loan vs Conventional
The benefits of a VA loan vs a conventional loan are obvious. These benefits ultimately are provided to the extent that institutional investors want to buy bonds! And institutional investors have different appetites for investment yield and risk they will assume to achieve that yield. Let me explain.
Conventional loans get funded and securitized through a similar process as VA loans. Conventional loans end up in securities created by the government “sponsored” enterprises FNMA (“Fannie Mae”) or FHLMC (“Freddie Mac”). This securitization process provides the liquidity in the entire loan industry. The money to fund loans does not come from your deposits made into banks.
The reason this process is mentioned is because investors in these securities (investments by huge pension funds, insurance companies and foreign governments) MUST meet specific requirements. These huge entities invest in these massive Wall Street investments, which in turn send the money to the lenders, who provide the money to you. Actually, that process happens in reverse order!
With the GNMA securities, the VA Guaranty provides a default backstop that is superior to the conventional loan. The conventional loan relies on a 20% down payment or some level of mortgage insurance as a loss prevention mechanism. Investors don’t like to lose money! When loans default, the risk of loss is significant!
When you stack up the “Investor Requirements” and their appetite for investment risk, the GNMA securities are less risky, and therefore have lower investment yields. That in turn translated to lower mortgage rates for your VA loan!
That said, FNMA and GNMA offer much higher yields than 30-Year Treasury Bonds, but still require certification to meet securitization requirements. These HUGE investors have finicky appetites, but their hunger translates directly to the comparison of the Benefits of a VA loan vs Conventional Loan:
VA Loan Conventional Loan
Lower Rates Slightly Higher Rates
Very Flexible Underwriting More Rigid Underwriting
Zero Down Payment 20% Down Payment
No PMI PMI for < 20% Down
No Credit Scores Required High Credit Scores Required
65%+ Debt Ratios Available 45-50% Max Debt Ratios
As you consider the financing benefits of a VA home loan, use our VA loan affordability calculator to determine how much VA loan an underwriter might approve you for. Or you could work the scenario from the other direction and just go to the VA loan mortgage payment calculator to see how much the payments are, give different input criteria.
Both of those calculators are terrific tools that give you rough estimates of affordability and loan payment information. These days, many Veterans are surprised to find that their mortgage ends up being more affordable than their current rent costs! Renting is not cheap!
Qualifying to Use Your VA Home Loan Benefits – 3 Easy Steps!
STEP #1: You’ll need your Certificate of Eligibility, also called a COE. If you’re certain that your entitlement is available, skip to STEP #2!
Your COE proves your current available VA Loan entitlement for your loan. It is easily available online through the ebenefits site at the Department of Veterans’ Affairs. Or we can pull your COE for you through our secure Veterans Information Portal.
STEP #2: Call a Sr. VA Loan Professional or begin your application online now!
You will absolutely need to get a VA loan Preapproval for before beginning on your journey to buying your ideal home. It is not possible in today’s real estate market to bypass this step. Your preapproval with give four different parties some level of confidence in pursuing a ratified contract to purchase a home. Here’s who will want this document:
- Your Real Estate Agent who represents you
- The Listing Agent that represents the Seller.
- The Seller
Without your Preapproval, you don’t even “get up to home plate to start swinging at pitches!”
STEP #3: Identify your wants & needs list and begin shopping for your ideal home. It’s very helpful to be working with a “VA Savvy” Real Estate Agent, who has lots of experience with VA buyers and demonstrates the commitment to go the extra distance in order to achieve your goals.
Once your VA offer to purchase gets accepted, the home inspection and VA appraisal come next. An inspector will thoroughly examine the house and provide you a long, detailed report of the findings. We always recommend you attend that home inspection.
The VA appraisal inspection is an entirely separate individual - a VA approved real estate appraiser who will determine if the property has safety deficiencies that the VA loan underwriter should be made aware of. The appraisal will prepare a report, giving a value to the home.
The remaining steps to closing should be a forgone conclusion, if the VA Loan Preapproval was performed correctly, and the inspections went well.
Call one of our Sr. VA loan professionals at 949-268-7742 today!