10 Things to Know About VA Loans

Savannah is known for its rich history, educational facilities, great restaurants, and the beach, to name a few traits.  One of its most important attributes is status as a military town.  We have the honor to be home to Hunter Army Air Field as well as be close neighbors to Fort Stewart just down the road.  Soldiers and their families are woven into the fabric of our community.  Depending on family size and duration of the assignment, many military members opt to purchase homes in the Savannah area real estate market, using a VA Loan.  VA Loans require no down payment, making it a perfect choice for buyers who may have great credit, but a limited stash of cash. 

Buyers using VA Loans should be aware of a few basics:

1.  A VA loan is available despite bankruptcy or foreclosure.  Even borrowers who have had a VA loan foreclosed can still utilize their home loan benefits.  This makes the VA loan unique among loan types.

2.  They are re-usable.  You can use your full VA entitlement over and over again as long as you pay off the loan each time.  There will be a slight adjustment in the VA funding fee, but the benefits outweigh the small cost.

3.  VA loans are only for certain types of properties.  This is the characteristic that typically causes the most confusion, especially over the last few years during which “as is” foreclosures and short sales have represented a high percentage of the “great deal” inventory.  VA loans are designed for the purchase of single family homes that are in move-in condition.  Buyers wanting a fixer upper are not likely to be able to use this approach.  An experienced Realtor can usually walk through a property and determine if it could pass VA standards.

4.  They are for primary residences only.  VA benefits are not to be used for investment property or a vacation home.

5.  VA loans are not issued by the VA.  The VA isn’t in the business of issuing home loans.  However, a part of a package of benefits available to military members, the VA provides a guaranty on each qualified mortgage loan.

6.  They are guaranteed by the government.  What is the guaranty?  If you have a VA entitlement, the agency guarantees up to a quarter of the loan amount.  This gives lenders confidence and helps the military member to secure great terms and interest rates.

7.  A VA Loan comes with a mandatory fee.  At closing, a VA Funding Fee is charged which can either be paid in full or added to the amount of the mortgage loan and financed.  This fee is around 2 percent of the loan amount.  It helps the VA keep the benefit program going.  The funding fee is waived for military who have service-related disabilities.

8.  They have limits on co-borrowers.  Some loans allow any co-borrower on the loan, even someone who is not going to live in the home purchased.  However, the VA loan program has only two acceptable co-borrowers, a military spouse or another eligible veteran who will live in the home.

9.  They don’t have mortgage insurance.  Mortgage insurance is a monthly fee rolled into the mortgage payment, included in loans where the buyer does not put at least 20% down payment.  For the average home in the Savannah area, the mortgage insurance premium equates to at least $100 of the monthly payment.  The VA guaranty eliminates the need for the mortgage insurance premium, increasing the affordability of the home for VA buyers.

10. VA loans do not have pre-payment penalties.  Extra payments on the mortgage (which save a ton of interest over the life of the loan) can be made at any time.  Making the equivalent of an extra principal payment each year can literally knock 10 years off the loan term.

While it is usually preferred to work with local lenders for VA loan processing, simply because they are easier to get in front of for general communication or problem resolution,  many of my military clients have had fantastic experiences with USAA and Veterans United Home Loans.  If you are currently serving in the military or have previously served, you may want to consider using the VA loan for your next home purchase.  For more information about this loan, lenders, or the home buying process, please contact me.