In honor of Veterans Day, we would like to thank all military veterans for their service. Additionally, our real estate agents would like to share some important information about VA loans — or Veterans Affairs loans — for homebuyers. These mortgages are available to qualified U.S. veterans, active-duty military members, and some surviving military spouses. Here is some crucial information to consider when deciding whether a VA loan is right for you.
- How VA Loans Work
Banks and credit unions issue VA loans. However, they are insured by the U.S. Department of Veterans Affairs (VA). This means that if you, the buyer, stop making your mortgage payments, the VA will step in and reimburse the bank. This lowers the risk for the bank, which makes them willing to lend money to buyers who may not otherwise qualify for a conventional mortgage.
- Credit Score Requirements
The VA does not have a credit score requirement for VA loans, but individual banks do. That being said, banks are often willing to issue VA loans to buyers with lower credit scores because the VA backing protects their interests. It's common to see credit score requirements between 580 and 660, depending on the bank. The higher your credit score, the better interest rate you're likely to get.
- No Down Payment
Saving a down payment can be one of the biggest hurdles for first-time homebuyers. This is especially the case if you've been traveling with the military for the past few years. Luckily, one big advantage of VA loans is that they do not require a down payment. You also do not have to pay mortgage insurance with a VA loan. With other types of mortgages, private mortgage insurance is typically required if you put less than 20% down. This insurance can cost $100 a month or more.
- Low Closing Costs
Another key advantage of a VA loan is the limits the VA puts on closing costs. The loan origination fee, which generally comprises a large portion of the buyer's closing costs, cannot exceed 1% of the loan amount. Lenders are also not permitted to charge a lender's fee for attorney services, mortgage broker commissions, or settlement charges — all of which are typical closing costs with other mortgage types.
- No Value Limits
Until 2021, there were limits on how much a buyer could borrow in the form of a VA loan. However, these limits were removed for 2021, and they won't apply in 2022, either. In other words, there is no maximum home price associated with a VA loan. You can apply to buy a $100,000 home or a $600,000 home. Of course, the bank will still only lend you as much as they believe you're able to pay back.
- Other Requirements
There are a few other requirements to consider before applying for a VA loan. If you're active duty, you need to provide a current, signed statement of service. If you're a veteran, you need a DD Form 214 outlining your reason for separation. You will also have to pay a VA funding fee, which is dependent on the size of your down payment. This fee will remain the same in 2022 as it was in 2021.
If you're a veteran or active service member, i's well worth considering a VA loan. This is often the most affordable way to buy a home, particularly if you don't have a substantial down payment. Contact us if you'd like to look at Wichita homes for sale. Our knowledgeable real estate agents will guide you through the process.