The internet brings with it many misconceptions. You see things online and you assume they’re true. Many times they aren’t. Bad word spreads quicker than good word. This is what ruined the reputation of the VA loan. There are many fallacies surrounding this program. Many veterans pass it up because of it. We wish to clear up some of these issues so you can take advantage of a very lucrative loan program.
Myth: The VA appraisal takes forever and can ruin a loan approval.
Truth: The VA appraisal is a little more in-depth than any other program. But, it is not the nail in the coffin many people make it out to be. The VA requires a home to be decent. This means safe and sanitary. That is the case for any loan program, though. If there is a home that doesn’t pass an appraisal, chances are no bank will lend money for it. The only people able to buy that home are those with cash to buy it.
But, the VA does have what they call Minimum Property Requirements. They are nothing out of the ordinary:
- All utilities must be in good working order including heating and plumbing
- The roof must have adequate life left
- There can’t be evidence of mold, mildew, or leaks
- There can’t be any termite or pest damage
These requirements are in place to ensure veterans are not purchasing run-down homes. This is not a rehab loan. It is a loan meant to help veterans own a ‘ready to live in’ home.
Myth: Veterans need great credit.
Truth: The VA doesn’t even require a specific credit score. Lenders do, though. This is what we call a lender overlay. The VA has their minimum requirements. The lender then adds requirements to it. This is because the lender funds the loan. They are the ones at greatest risk. Many lenders want a credit score of at least 620. This is far from a perfect score. In fact, it is the lowest among many programs. The FHA loan is probably the closest when it comes to credit score requirements.
Lenders usually look at credit history too. They prefer the last 12 months to be clear of any late payments or collections. If you have a bankruptcy or foreclosure, it should be at least 2 years before you apply for a VA loan. Again, this is a short time compared to many other programs.
Myth: VA loans take forever to close.
Truth: VA loans take about the same amount of time as any other loan. This is one of the common misconceptions pertaining to VA mortgages. It depends on the lender and how backed up they are. The VA doesn’t have a lot to do with it. In the past, the holdup may have been the appraisal. But today, VA loans are so common that appraisers know exactly what to look for. VA appraisals and loans don’t take any longer than any other loan. In fact, last year VA loans closed faster than many conventional loans. It truly depends on the lender and their turnaround times. If time is of importance to you, shop around with different lenders and ask about their turnaround times.
Myth: You are limited on the price of the house you buy.
Truth: Yes, there are VA loan limits. That doesn’t restrict the price of the house you buy, though. There are ways around it. You can borrow up to the VA loan limits in your area with no down payment. Any money you borrow beyond the loan limits will require a down payment. Many lenders require just 25% of the difference between the limit and the amount you borrow. This is peanuts compared to what you would have to put down for any other loan program. As long as the home passes the VA appraisal, you aren’t limited by anything except what you can afford.
Myth: FHA loans are better than VA loans.
Truth: Both loans are good. But, if you are a veteran, VA loans have more benefits. FHA loans require at least a 3.5% down payment. VA loans don’t require a down payment as long as you stay within the loan limits. In fact, VA loans have the lowest default rate amongst any loans. The VA attributes this to their focus on residual income rather than a debt ratio. This way they make sure a veteran’s needs are cared for and no sacrifices must be made.
Myth: Every veteran can have a VA loan.
Truth: Yes, veterans are eligible for the loan program, but not every veteran can have one. You must serve the time and have an honorable discharge. If you served during peacetime, you must serve at least 180 days in a row. If you served during wartime, you must serve at least 90 days in a row. In addition, you must obtain a Certificate of Entitlement. This is only applicable to borrowers that served the time and have the right discharge.
As you can see the VA loan is a great loan program. It offers affordable financing with no down payment. The flexible guidelines make it possible for many borrowers to qualify. It is a great way for veterans to secure a house soon after leaving the service without worry. The focus on residual income and the lack of need for high credit scores help the process.
If you are a veteran, we encourage you to look at all of your options. Generally, you will find that the VA loan offers the best terms. You don’t need money down on the home in most cases. Plus, you get the advantage of the low VA closing costs. Because the VA guarantees your loan, the lender can take slightly riskier situations compared to any other loan program. Not that banks want loans that will default, but having the VA’s guarantee takes the stress of the bank. As always, shop around with many lenders to see who has the best deal. VA loan programs may vary from lender to lender. See which one suits you best and make the most of your chance to own a home.