If you are active-duty military or a veteran, don’t overlook all those hard-earned benefits that come with military service.
One of the most beneficial is the VA home loan benefit. A VA mortgage has many perks and removes barriers to homeownership. In most cases, it comes with no down payment, no mortgage insurance, and flexible credit and income guidelines.
Once you earn a VA loan benefit, it’s yours for life – and you can use it over and over again. A VA loan is good for first-time homebuyers, if you had a one decades ago if you want to refinance or even if you have a past foreclosure.
Learn all you can about the VA loan process and eligibility and get yourself ready with these tips:
Get your finances in order: For starters, know your credit score. A low credit score can result from paying bills late, past collections, no credit, and too much debt, especially from credit cards. The good news is you don’t need a perfect score for a VA loan. Some lenders will accept a 620 score, which is considerably lower than what is required for a conventional or FHA financing. A higher credit score will help you qualify for a lower interest rate, so it pays off in the long term.
Review your credit report: Get a copy of your credit report early and scour it for errors. You can obtain one free copy of your credit report per year from Annual Credit Report.com. Talk to a loan officer or trusted banker on what you can do to report and remove errors and improve your score. Start paying off debt and paying bills on time.
Don’t fret over a down payment or closing costs: One of the biggest benefits of a VA loan is it comes with a $0 down payment and no mortgage insurance. In many cases, the seller will cover needed repairs and pay all of your closing costs. Some VA loans actually limit what buyers can pay in closing costs. You also can request other concessions in the purchase offer. However, you still need cash on hand to cover things like an earnest money deposit, the appraisal, and a home inspection. There are always costs that come with securing a home loan. You may get some or all of the money back at closing, but be prepared and give yourself a cushion for unexpected expenses.
Have reliable income: One of the key factors in qualifying for any home loan is job security. Besides a steady and stable income, lenders also want to see an annual income high enough to repay the loan and other bills. Preferably, you should show two years or more at the same job. Be prepared to produce your pay stubs, tax returns, and bank statements. VA disability payments, child support, and other income may qualify you, but you need to have a suitable debt-to-income ratio.
Understand debt-to-income ratio: Typically, the VA requires debt-to-income (DTI) ratio at or below 41 percent. Start paying off car payments, credit cards, and other loans to improve your DTI. In addition, VA loans have residual income guidelines to ensure you have enough money to pay the loan and your other expenses. You may have to reduce your loan amount or find other income sources.
You can start without a COE: Paperwork is part of the process, and a Certificate of Eligibility is required to prove your benefit. It’s not necessary to start the prequalification process. Ask your lender to get this document. You also can talk to your VA benefits advisor, try the VA’s eBenefits online portal, or contact the closest VA Regional Loan Center.
Adhere to acceptable uses and other terms: Most VA-backed mortgages have special terms, including using the program to buy or refinance a primary residence. VA loans typically have occupancy requirements. The home should be your primary residence within 60 days of closing. A VA loan doesn’t apply to buying rental properties (unless you live in one of the units), vacation homes, working farms or other income-producing properties. VA lenders also shy away from construction home loans or manufactured housing.
Get preapproved for a VA loan: Once you feel financially stable, compare different lenders and loan terms and get preapproved for a mortgage. This lets you know what you can afford and shows sellers and realtors you are ready and able to buy a home. It also pays to shop around, read the fine print, and understand the terms of the loan. One big decision is whether to go with a fixed or adjustable rate loan.
Find an experienced VA realtor: A VA loan comes with its own unique rules, requirements, and guidelines for qualifying properties. The VA appraisal and inspection process can be more stringent and some homes simply won’t pass. The VA wants to back homes that are “move-in ready.” Foreclosures and fixer-uppers pose problems because repairs must be made before closing. An experienced VA agent can save you a lot of wasted time, headaches, and hassle. Seek out an agent who understands the loan program and has experience with military and veteran home buyers.
In general, you want to be on solid financial ground and stick to a realistic budget as you start shopping for loans and homes. Don’t open a bunch of new credit cards, changes jobs or make big purchases on credit in the months leading up to buying a home.
Becoming a homeowner is within your reach and can give you a sense of stability and security after many years of being deployed or moving from base to base. Plus, you have earned the benefit, so why not use it. Be an informed consumer, do your homework, and take your time so you find the best home and mortgage for your situation.
The caring and committed realtors at Core Realty Partners will do their part to make the home buying process as smooth and stress-free as possible. Call us today to start the search for your new home!