Buying a home is a unique experience for everyone, with no "one-size-fits-all" scenario. And financing it with a VA home loan can be confusing and a little scary -- so much so, in fact, that myths around the VA home loan process run rampant. Some lenders even count on your ignorance about the process to pad their bottom lines.
How can you play it safe, educate yourself and make the most of the VA home loan benefit you earned through service? Get smart on the rules around VA home loans, and know how to spot a VA home loan lie when you see one.
Lie 1: The VA Requires a Minimum Credit Score
There is no minimum credit score established by the VA -- zero, zip, nada. However, most lenders have their own internal guidelines for minimum credit score requirements, often in the range of 580-640. If your credit score is on the lower end of the spectrum you may still be approved, but expect the interest rate to be higher, as with any lender.
Lie 2: The VA Has Debt-to-Income Ratio Rules
There is no debt-to-income ratio established by the VA, but there is a rule about residual income. Similar to credit score requirements, many lenders have their own internal debt-to-income guidelines, but there are some that go along with the VA's rules. Those instead look at residual income through a formula that considers family size and zip code, and calculates how much money the family needs to have left over after all of their monthly debt obligations are paid. As long as you have that amount of money left, in the VA's eyes you are good to go.
Lie 3: You Must Meet a Residency Timeline Before Reselling
In truth, there is no residency timeline to meet. You could live in the home one month, one week, or one day, and the VA won't care. Instead, the requirement is simply that, upon purchasing the home, you intend for it to be your primary residence. That's it. Stuff happens, orders and deployments come last minute, and no one is chasing you down to make you live in a house for longer than is practical for your family situation.
Lie 4: You Can't Have Multiple VA Loans at Once
You actually can have multiple VA loans at once. Many times, families purchase a home in one location, have to move, and convert that first home to a rental property. VA home loan rules allow them to still buy a second residence in their new location with little to no money down, depending upon the combined price of their homes and the area loan limit in their new location.
Lie 5: You're Stuck With the VA Funding Fee
The VA funding fee can actually be waived. The largest part of closing costs on the VA loan is the funding fee, which is a percentage of the loan amount that can be lowered with a down payment of 5%, or even more with 10%. But this fee can be waived if the veteran using the benefit has any disability rating, no minimum percentage or "service-connected" status required. Also, if an approved service member is transitioning and has already had their medical exam and applied for disability rating, the VA will refund the funding fee so long as the date on the application paperwork is before the date of closing on the home.
Lie 6: You Must Pay Lender Fees
Lender fees aren't necessary. The VA does allow, up to 1% in lender fees in "Section A" of the loan estimate. They are usually labeled as processing fees, underwriting fees, admin fees or origination fees. But many lenders out there will charge nothing. When you shop for a lender, remember that these "normal and customary" fees are not necessary and can (and most certainly should) be negotiated down if encountered.
Lie 7: You Can't Assume Someone Else's VA Loan Rate
VA loans are actually assumable. If you are purchasing a home from another veteran whose current loan has a below-market interest rate, you can assume that loan under the same terms and conditions, as long as you qualify. That could save you thousands in the long run.
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