What Is a VA Loan?
A VA loan is backed by the government and is open to active and former service members and their surviving spouses in some cases. One can use a VA loan to purchase or build a home, improve and repair a home, or to refinance a mortgage. Significant benefits include reduced credit score requirements, no private mortgage insurance, no down payment requirement, and competitive rates.
You can apply for a VA loan more than once, but the funding fee increases when using a VA loan after your first time. The VA funding fee is a one-time charge that you pay when you get a VA-guaranteed mortgage to purchase or refinance your home. In many cases, you’ll have the option to roll the VA funding fee into your loan. The typical funding fee ranges from 0.50% to 3.60% of the loan amount.
You will need a certificate of eligibility (COE) which you can obtain from the VA website, or your lender can assist you with this. In order to get this certificate, you’ll have to produce service-related documentation, which can vary based on whether you are active duty or a veteran.
How Does the Cares Act Impact VA Loans?
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law on March 27, 2020, to help Americans economically impacted by COVID-19. The CARES Act’s aim is to help homeowners avoid home foreclosure.
The CARES Act created options for VA loan borrowers to avoid foreclosures, such as delayed and partial payments called “forbearance.” You can request a forbearance for up to 180 days without paying late fees or other penalties if you were affected financially by the COVID-19 pandemic. Other protections the CARES Act provides for VA mortgage-holders are a moratorium on foreclosures and credit score protection if you need to take advantage of the forbearance program.
Do VA Loans Vary by Lender?
The two main ways a VA loan can vary slightly from lender to lender are the rate and the minimum credit score. The Veterans Administration does not underwrite the loan; it provides a guarantee to the lenders who offer the loan program. The lenders determine the rate they will offer, as well as the other underwriting guidelines they will adhere to, such as your credit history and debt-to-income ratio.
Credit score minimum requirements differ slightly from lender to lender, with most settling on 620 as their accepted minimum. Credit limits are not set by the U.S. Department of Veteran Affairs. The VA’s only credit requirement is for the borrower to be considered a satisfactory credit risk by a lender.
The benefits of a VA loan are the same no matter which lender you choose. The key benefits of the program are no down payment requirement, no PMI requirement, and no prepayment penalties, with a VA funding fee taking the place of the PMI.
Why Do Sellers Seem to Dislike VA Loans?
The VA has what are called “minimum property requirements.” These include non-negotiable items like construction defects, termite infestation, leaks, decay, dampness, and continuing settlement in or near the foundation. While sellers engaged with buyers who bring a non-VA loan to the purchase can negotiate the repair costs of these types of items, the VA program requires these items to be fixed before they will give the lender the approval to back the lender’s mortgage loan to the borrower. That puts pressure on the seller to fix these issues primarily at their cost if they want to be able to sell their home to the buyer who presents with a VA loan in their pocket.
What Problems Arise in a VA Home Inspection?
If you are purchasing a home with a VA loan, you will be required to obtain a home inspection. The cost will vary by location but ranges between $300 and $500. You will also need to obtain an appraisal for your property. The VA inspection is much more in-depth than the home appraisal. The inspector will look at the home’s structural integrity, plumbing and electric systems, HVAC, roof, attic and crawl spaces, wood-destroying insects, fungus and dry rot, radon gas, and if applicable, the well and septic systems.
The primary defective concerns the VA will have if discovered during the home inspection include construction defects, poor workmanship, foundation problems, dampness, leaks, decay, and termites.
How We Chose the Best VA Loan Rates
We reviewed the details of VA loan programs from 18 different lenders before we chose the best. Veteran-specific support, a streamlined application and underwriting process, logical website navigation, range of loan products, industry reputation for customer service, minimum credit score requirements, automatic payment features, and rates published as of September 2020 were our main investigation focus.