This week, top-producing real estate sales consultant Kevin Trovini of The Jason Mitchell Group explains the benefits of using the VA loan for vets looking to purchase their next home.
I am sure that you have heard the old adage that “The only constant is change”. Well, the real estate profession is no stranger to change, and with changes all around us, it is important to know the “ins and outs” of the VA loan process as it pertains to our Veteran community.
This article is intended to offer a basic overview of the VA loan, to educate and inform both novice Realtors and Veterans alike, and to point out a few specific key points to assist the Veteran who is considering using this benefit to purchase their next home.
I have a sense of obligation to provide outstanding support and services to all of my clients, and as a 20 year Veteran of the US Air Force and US Navy, I have a special sense of giving back to my fellow Veterans – my Brothers and Sisters in Arms – and helping them to secure the best “deal” possible for their next home purchase, and to provide them with all the pertinent information they need to know in order to accurately use and maximize the value of their VA loan benefit.
So, let’s start off by gaining an understanding of what the VA loan is. The VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. Generally, all Veterans using the VA Home Loan Guaranty benefit must pay an upfront, one-time payment called the VA funding fee. This reduces the loan’s cost to taxpayers considering that a VA loan requires no down payment and has no monthly mortgage insurance. This fee is a percentage based on the loan amount. VA home loan applicants can pay all or part of the fee in cash, or wrap it into the loan amount to reduce out-of-pocket expenses.
Although a down payment is not required on VA loans, the veteran has to pay for closing costs, or receive enough seller or lender credits to cover them. VA loan closing costs average around 1% – 3% of the loan amount.
The termite inspection, which had previously been paid for by the seller, is now paid by the Veteran.
Here are a few other key terms and/or benefits and savings for the Veteran:
- VA Funding Fees: On average, about 90 percent of borrowers use VA loanswith no down payment. However, there’s a perk to paying down as little as 5 percent. If a VA loan borrower puts down at least that amount, the VA Funding Fee shrinks. For a first-time VA loan borrower, the funding fee is typically 2.15 percent with no money down. However, with a 5% down payment, the funding fee will be reduced to 1.5%, and a 10% down payment will further reduce that amount to 1.25%. Be sure to Check with your lender for more information and the verify these rates.
- Lender’s Compensation: The VA caps the lender’s compensation on VA loans to 1% of the loan amount. This fee is meant to compensate the lender in full. Fees for items such as processing and underwriting may not be charged if this 1% fee is charged to the veteran.
- Appraisals: The VA appraisalis an assessment of the property’s value and condition by an independent VA appraiser. A VA appraisal also has additional protections for the veteran that other appraisals don’t have. These protections are called Minimum Property Requirements, or MPRs. MPRs requires that the property meet certain conditions before being VA
- The VA loan Eligibility process and Certificate of Eligibility – The Certificate of Eligibility (COE) verifies to the lender that you meet the eligibility requirements for a VA loan.
- What are the “non allowables”? Per the VA loan guidelines, some fees are not allowed to be charged to the Veteran, and some are covered by the lender, per VA loan guidelines. These are a few of the “non allowables”:
- Escrow fees
- No pre-payment penalty
- Document prep fee
- Loan application or processing fee
- Loan closing or settlement fees
- Interest rate lock-in fees
- Notary fees
- Courier fee
- Application fee
When you are ready to start your house hunting, start by interviewing a reputable, local lender who is familiar with the VA loan process, and who participates in the VA program. This is the time you should begin your “pre-qualification” phase, which allows you to identify just how much of a loan you can afford. Your debt-to-income (DTI) ratio is the key to securing a larger loan amount, so be sure to review your bills and debt, and work on getting your financial business and credit in order early in the process. If you need help in this regard and are not quite sure how to go about this, contact your local lender and have that open and honest conversation. They’ll be more than happy to assist you. Additionally, and this is very important, DO NOT make any new big purchases at this time, as that will blow up your DTI ratio. So, hold off on buying that new car, or that new dining room set. You should also consider shopping around for the best deal, as Lenders set their own interest rates, discount points, and closing points. Don’t be shy about asking the lenders to verify exactly what they can offer you to get you into the loan for the least amount of fees possible. Create a list of all fees associated with the loan process and fill in the blanks as you discuss the details with several lenders. Your Realtor can assist you with obtaining a sample settlement sheet from a local Title Company so you have a good sample document to start with.
Here are a few good sources to get more information about the VA loan and benefits:
- The US Department of Veterans Affairs web site at https://www.benefits.va.gov/homeloans/purchaseco_buy_process.asp
In closing, the best advice I can offer is to start early, do your research, ask questions, and hire a knowledgeable and caring Realtor to help you through the process. Buying a home is one of the biggest investments of your life, and being educated and informed will help reduce the stress associated with this decision, and allow you to proceed smartly and confidently, and make this an enjoyable experience. Good luck, and I hope you found some benefit from this article!
*For additional information, or to work directly with Kevin, you can contact him at (928) 848-2204, or reach him via email at ktrovini@MitchellGroupAZ.com