Most of us have heard second-hand stories about VA loans that went spectacularly wrong. In fact, wild tales about VA loans can raise questions about the perks of the VA’s home loan benefit. Maybe you’ve heard something about the VA appraisal process. Or, you’ve been told you can’t qualify unless you have a FICO score in the 700s. Or, perhaps you are doubting that your home loan benefit is still valid - it’s use it or lose it, right?
Many myths swirl about this government-backed loan program. Some are exaggerations of the truth (credit scores, for example) and others are flat out false (no, it’s not use it or lose it.) Fortunately, it’s easy to bust the myths when you have the facts. The VA has backed more than 22 million home loans since the program’s inception in 1944, enabling millions and millions of Veterans to live the American Dream.
It’s time to separate the real stories from the tall tales. A closer look can help you make sense of what you may or may not know about VA loans.
Myth #1 ― You Need Perfect Credit to be Approved
False. While the VA encourages approved lenders to provide VA loans to all qualified applicants, it does not describe a minimum credit score. Each lender has its own credit requirements, which they use to verify that borrowers meet the ability to repay the loan. Lenders are expected to use good judgment and flexibility when applying the VA’s underwriting recommendations for credit, debt, and income. Typically a score in the 620s or better is needed to apply for a VA loan.
Myth #2 ― Only Combat Veterans Are Eligible
False. Veterans, active duty servicemembers, reservists, National Guard members, surviving spouses, and other individuals can earn eligibility for home loan benefits. You may be eligible if you are a(n):
- Military Veteran
- Active Duty Servicemember
- Reservist or National Guard Member
- Surviving Spouse
- Academy Cadet or Midshipman
- National Oceanic & Atmospheric Administration (NOAA) Officer
- Public Health Service (PHS) Officer
To obtain your Certificate of Eligibility (COE), click here to use an online COE tool.
Myth #3 ― You Can Only Use The VA Home Loan Benefit Once
False. If you earn a VA home loan benefit it is yours for life, and in some cases, can be used multiple times at once. Many Veterans use it again and again for their home financing needs. You can use it to buy that starter home, and then use it again to upgrade to a larger home for your growing family. And you can use it again to refinance your property for a lower interest rate or get cash out of your home’s equity. Depending on the value of each property you buy, you may or may not need to restore entitlement to reuse your benefit. As long as you have enough entitlement to back your loan, a VA loan can be a great mortgage choice for all stages of life.
Myth #4 ― The VA Appraisal Takes Too Long
False. VA appraisals shouldn’t take any longer than appraisals for conventional loans. Once you have signed a purchase contract, your lender can order the VA appraisal. Once ordered, the VA will dispatch it to the next available VA-approved appraiser. The VA guidelines state that appraisals can take anywhere from seven to 28 business days, depending on the property’s location.
Myth #5 ― VA Loans Have Unexpected Out-of-Pocket Costs
False. In fact, VA loans are known for their benefits, including no private mortgage insurance (PMI) and, in most cases, zero down payments. Think it’s too good to be true? The VA itself says that about 90% of all VA purchases have been made with no down payment since the program’s inception. According to Ellie Mae, a mortgage software company, VA borrowers average 98% loan to value (LTV) in 2017, while conventional loans average 80%.
As far as other out-of-pocket costs go, you should receive a Good Faith Estimate from your lender. And there should be no surprise fees at closing time. You can expect to pay a VA funding fee (unless exempt), an appraisal fee, an origination fee, title fees and some other costs approved by the VA. You can pay these fees upfront or possibly roll some of them into your loan. Another option may be for you to negotiate seller-paid fees in your purchase contract. With VA financing, a seller can agree to pay all closing costs and up to 4% concessions.
Myth #6 ― VA Loans Have Too Much Government Red Tape
False. Most VA lenders have authority from the VA to underwrite loans automatically, without submitting them to the government for approval. A good lender will establish a trusted relationship with you. And you should feel comfortable working with them on all aspects of your loan journey. Unless there’s some extenuating circumstance, you probably won’t work directly with the government when you apply for your VA loan. You do have the option of using the VA website to obtain your COE, but even for this step, you can use your lender as a liaison.
Myth #7 ― You’re Limited As Far As What You Can Do With Your VA Home Loan Benefits
REAL STORY: many people believe that VA loans are only for purchasing single-family houses. But just look all the different ways to use your VA home loan benefits:
- Buy a single-family house
- Buy a condominium unit in a VA-approved complex
- Buy a multi-family property (up to 4 units per VA-eligible borrower)
- Build a home
- Buy and improve a property
- Make energy efficient improvements
- Buy a manufactured home and/or lot (certain lenders)
- Streamline refinance your VA loan for a lower rate or payment
- Cash-out or regular refinance your VA or non-VA mortgage
Myth #8 ― VA Loans Have Higher Interest Rates
False. VA loan interest rates are usually as low or lower than competitive rates on conventional loans. Based on data from Ellie Mae, the average interest rate on 30-year conventional loans was 4.39% from January through September, 2017. The average VA rate for that same period was more than one-third point lower at 4.05%.
TIP: When you’re shopping for rates, be sure you’re getting an Annual Percentage Rate (APR) along with your quoted rate. A higher APR in relation to your quoted rate, typically means higher fees.
Myth #9 ― Most Veterans Don’t Qualify for VA Loans
False. In fact, most Veterans are eligible for VA loans. More VA loans are being approved than ever. In 2016, the VA backed a record 705,474 mortgages totaling nearly $179 billion. By Ellie Mae stats, VA and conventional loans both had a closing rate of 76.1% from January through September 2017.
Myth #10 ― VA Occupancy Rule Is Too Hard For Active Duty Serving Overseas
False. VA requires owner occupancy within a reasonable time after closing ― usually 60 days. But there is more than one way to skin a cat for active duty military personnel. Those serving away on active duty can receive an extension of up to 12 months if needed. If the active duty member still can’t satisfy the rule, a spouse or dependent child can.
Before you believe something you hear or assume about VA loans, take a moment to research it. VA loans are originated by approved lenders and backed by the U.S. Department of Veterans Affairs. The guaranty enables lenders to offer favorable terms such as:
- $0 down payment (up to loan limit)
- No private mortgage insurance premium
- Limit on what fees you can be charged per VA guidelines
- Closing costs may be paid by the seller
- No penalty fee if you pay the loan off early
- Free VA assistance if you have trouble making payments
For information or to get your VA loan started, click here to contact Veterans First Mortgage®.
Veterans First is a trade name of Wintrust Mortgage, a division of Barrington Bank & Trust Company, N.A., a Wintrust Community Bank. I NMLS# 449042 I Equal Housing Lender