Are you an active-duty service member or veteran considering buying a house? That’s good news because you may be eligible for a VA loan – a loan with significant benefits that are hard to beat. You can get lenient credit requirements, and you won’t have to make a down payment or pay for PMI. So let’s see if a VA loan is right for you. Here’s everything you need to know about VA loans when buying a house in Northern Kentucky.
VA Loan Overview
To help you understand what you need to know about VA loans when buying a house in Northern Kentucky, let’s begin with an overview of VA loans.
Guaranteed by the U.S. Department of Veterans Affairs (VA), a VA loan “is a mortgage loan for service members . . . Its main purpose is to help Veterans finance a home purchase with favorable loan terms.”
Qualification for a VA loan involves meeting the income and credit requirements, and you will need to have a valid Certificate of Eligibility (COE). “While length of service, duty status, and conduct can also affect your eligibility for a VA loan, you may be able to obtain a COE if you” are . . .
- A veteran
- An active-duty service member
- National Guard member
- Reserve member
- A surviving spouse
Pros of VA Loans
If you are considering buying a house with a VA loan, you should be aware of the significant benefits.
The VA guarantees a portion of the loan will be paid back to the lender, in case the homeowner defaults. Government backing gives lenders the confidence to extend financing with great rates and terms. While the VA insures the loan, the government itself does not lend money for the loan . . . You actually get financing from a private mortgage lender, . . . just like you would with a conventional loan.
No Down-payment Requirement
One of the biggest pros of VA loans is that qualified buyers typically don’t have to make a down payment, being able to finance 100% of their primary home’s sale value. This is a huge benefit, since it allows the service member to leave the money they would have used for their downpayment in their bank account. This money can be used instead as an emergency fund, or to make improvements/repairs to the home post closing.
No Private Mortgage Insurance (PMI)
For almost all other mortgage loans, when buyers put less than 20% of the sale price down, they have to pay for PMI. But that’s not the case with a VA loan. With a VA loan, there’s no PMI, potentially saving you hundreds each month when compared to a conventional loan.
More Forgiving Credit-wise
Since the VA backing reduces lenders’ risk, they can be more flexible with their terms, such as credit score minimums and ranges. The minimum will vary from lender to lender, but most are looking for a credit score of 620 or above. . . . Credit ranges are much broader as well, and interest rates are not based heavily on credit scores. For example, if you have an average credit score, you may get the same interest rate as someone with an excellent score. In addition, the VA program is more lenient with things like a previous bankruptcy, short sales, and foreclosures than a conventional loan program.
Cons of VA Loans
You should also be aware of the cons of buying a house with a VA loan. There are few, such as . . .
The Mandatory Funding Fee
The Funding Fee is a mandatory fee applied to every VA purchase loan or refinance. It’s required by the VA, which uses it to cover losses on loans that may go into default. The fee is a percentage of the loan amount, and it’s based on whether this is your first time using a VA loan, if you’re making a down payment, and if you’re purchasing or refinancing. The fee is listed as a closing cost, but you can finance it in addition to your loan amount.
Required VA Appraisal
This is really more of an inconvenience than a con, but you should still take it into consideration. One contingency of a VA loan is that you must get a VA appraisal. The VA appraisal is an evaluation of your proposed property value. An independent VA-certified appraiser inspects the condition of the home, compares surrounding sales, and makes a value assessment. The appraisal can be anywhere from $300 to $500.
A property has to meet certain requirements for a VA appraisal that other loan programs do not have. This usually works in the favor of the veteran/service members because improvements may be required for the buyer to get their loan that the seller would not otherwise agree to complete. Of course, the seller is not obligated to make repairs that the appraiser calls for, however, without those repairs being made, the seller will have to put the property back on the market and try to find another buyer. In some instances, I have seen these additional VA requirements prevent a veteran/service member from being able to purchase an investment property that they wanted to purchase, even though it needed some additional work. VA loans seems to work best for primary home purchases.
A VA appraisal usually takes about 24 days to be completed, but it can take much longer. In addition, timelines for these appraisals can vary by state. A Northern Kentucky agent can help you understand what you’re looking at time-wise for the VA appraisal. To find out more, just call (859) 780-3000.
Process of Buying a House With a VA Loan
The process of buying a house with a VA loan is very similar to that for any other home purchase. Here’s how it typically goes . . .
- Pre-qualification – Find a VA lender and prequalify to get an estimate of how much house you can afford based on your income, credit, entitlement, and other financial factors. Pre-qualification is a basic first step that paves the way for a much more powerful step – VA loan pre-approval.
- Pre-approval – Pre-approval tells how exactly how much you can borrow and that you can actually borrow that amount (barring any changes in your financial situation). Your pre-approval letter will make sellers see you as a serious buyer and will give you more negotiating leverage.
- Making an offer – When you and your agent find the perfect VA loan-approved home, it’s time to craft an offer and negotiate a contract with the seller.
- VA appraisal and underwriting – We’ve already touched on the VA appraisal. Around the same time, underwriters will evaluate your income, financials, and related documents, along with the appraisal once it’s finalized. If everything checks out, you’ll be issued a clear to close and move on to your loan closing.
- Closing – Finally, after all the paperwork is signed, you get the keys to your new home.
Your Partner for Buying a House With a VA Loan
As you can see, while this is similar to buying a home with a conventional loan, there are some differences and special considerations. That’s why you’re much better off partnering with an agent who has experience with VA loans and the many nuances involved. And we have the agents you can count on. If you’re considering buying a house in Northern Kentucky with a VA loan, don’t hesitate to contact us at (859) 780-3000.