So, you are thinking of buying a home with your VA loan... Let's begin by saying thank you for your service. As a Realtor who helps a lot of veterans find homes every year, I can say that you have truly earned this spectacular benefit! The VA loan is 1 in a small handful of loans that offer nothing down. Many other loans require anywhere from 3.5% to 20%. This can make quite a difference in your purchase. An FHA loan, for example, would require a $7,000 down payment on a $200,000 loan. As I always say, the best place for $7,000 is in your wallet! There are many other benefits to a VA loan. While we will not have enough time to go over all of the details, we will be able to cover much ground on the VA home loan landscape.
First, we should focus on what types of property are financed using a VA home loan. Single family home loans are the "bread and butter" of the loan program. They mainly focus on single family detached homes which are pre-existing. This means that they are built prior to closing. People often ask if they can use their loan to build a home. This question can be more complicated than it seems. If you are asking about buying a new construction home that will be completed on closing day, then the answer would be yes. If you are thinking a loan where "draws" are needed by the builder during construction, then the answer would be no. You would need to secure a construction loan, and then refinance through VA. Many times this situation is not ideal, becasue construction loans are higher risk. The term "higher risk" translates into "huge down payment". The VA loan would be better suited to other situations. The next possible use for a VA loan would be a condominium, townhome, or mult-family property. While each of these can present issues under the VA, they are all possible. The condominium complex would need to be approved through VA. This process can be lengthy if it is not already done. Your Realtor can steer you through the process. Many people are surprised to learn that VA will finance a multi-family property. These types of properties can be: duples, tri-plexes, and quadroplexes. This option is attractive to veterans who would like to make income from renting the other units. Please remember that projected income from the units cannot be used for loan qualification purposes. Manufactured and modular homes can be financed through VA as well. Modular homes are treated as a "stick-built" home as long as they are pre-existing on the property. The manufactured home presents issues. While VA allows for financing on these types of properties, the lender probably won't. This issue comes as a surprise to many borrowers. You not only have to satisfay the VA, but also the lender requirments. Many lenders avoid lending on manufactured homes, becasue of risks.
Now that you know what you can use your VA loan for, we should go over a few things about qualifications and loan amounts. In general, the guarantee allows you to purchase up to $417,000. Of course, there are many factors that can change that number. Please check with your Realtor or lender about your specific situation. There are exemptions and other situations that can benefit you. You will basically need to be either active service or discharged under conditions other than dishonorable. Again, this is an area where it is a good idea to ask a lot of questions to your lender. If you have your Certificate of Eligibility, then you are off to a good start. If you do not have a copy, do not worry. One can be obtained for you.
Qualifying for the VA loan can be an easy process. Of course, the first item to know is whether you are eligible. Under most circumstances, eligibility can be verified quickly. There are circumstances which could slow the process down, which are: foreclosure of a VA loan and verification on length of service. Credit score is always a factor in approval. While the VA does not have a steadfast rule on a credit score, many lenders will. These requirements are often called "overlays", which means basically that the lender imposes requirements above the VA requirement. A good baseline credit score would be 620 FICO. Of course, better rates ar offered to borowers with better credit scores. One last item would be your debt-to-income ratio, or DTI. The VA prefers a DTI of 41 or lower. They will accept a higher DTI, but there may be other requirements in order to qualify.
As you can see, there is so much to know about VA financing. We could literally write a book on the subject, and many people often do. This article merely scratches the surface. There is so much more to talk about: reusing your VA loan, using it on more than one property, using your VA loan after foreclosing on a VA loan, and much more. The best thing to do is to ask questions. I would be more than happy to answer any questions that you have. It's what I do!
Jonathan Gunnels, Realtor, BIC
Pinnacle One Properties Elite, LLC