VA home loans provide active duty military members and veterans with the opportunity to purchase a home at competitive rates, and often with no money down. Most of the time a VA loan is the best way for military members and veterans to purchase a home, but it does come with conditions. Knowing the facts about VA home loans will help determine whether buying a house with a VA loan is the best option for your family.
In order to apply for a VA loan, you must obtain a Certificate of Eligibility from the Department of Veterans Affairs. This may be done online through the VA, making it easy for private mortgage lenders to determine whether you are VA loan eligible.
In addition to receiving a certificate of eligibility for a VA loan, the property you purchase must meet certain requirements in order to be VA loan eligible. Many foreclosures or properties that would qualify as fixer-uppers do not meet the minimum requirements for a VA loan. These requirements focus on making sure that a home is structurally sound and could be lived in comfortably in the state in which it is purchased. For example, if a home is missing flooring or has a bathroom that needs extensive repairs, it will not qualify for a VA loan.
The price of home you can purchase with a VA loan varies by county and personal income. In some counties the cap for VA loans is around $400,000 where other counties cap the amount at around $700,000. The specific amount you are able to borrow is determined by your monthly salary, which must be more than 35 percent of your monthly mortgage payment, tax payments and any other monthly debt payments. For example, to qualify for a $150,000 30-year loan when you have $500 a month in additional debt payments, you must make at least $2100 a month.
While most VA loans offer 100 percent financing, which means you do not have to put any money down, and do not require you to add PMI (private mortgage insurance), they do come with fees of their own. All recipients of VA home loans must pay a first-use fee in order to obtain a VA loan. The amount of the fee is based on the following scale:
- Zero money down – 2.15%
- 5-9.999 percent down – 1.5%
- 10+ percent down – 1.25%
Veterans with service-connected disabilities and surviving spouses are exempt from the fee.
In addition to the first-use fee, Veterans are responsible for paying closing costs. The closing costs include, but are not limited to:
- VA-approved appraisal
- Recording fees
- Title insurance
- Hazard insurance
Instead of paying an itemized list of closing costs, you may choose to pay a one percent fee to the lender to cover all of the closing costs. If you wish to have your closing costs rolled into the total cost of your mortgage, you must increase the amount of your mortgage and have that decision approved by the lender. Keep in mind that the amount of the VA loan may not be more than the appraised value of the property, so if you purchase a home at the amount it appraises for, you will not be able to roll closing costs into your mortgage.