By Barbara Marquand
If you served in the military, a mortgage guaranteed by the United States Department of Veterans Affairs may be your ticket to home ownership. VA loans don’t require a minimum down payment or mortgage insurance, and they often have lower interest rates than other mortgages.
“Using this VA loan is an opportunity to buy part of America and build wealth,” says Levi Rodgers, former Green Beret and owner / broker at Re / Max Military City in San Antonio.
But applying for and using a VA loan involves steps that other mortgages don’t, and not all salespeople or real estate agents are familiar with them. It’s important to be prepared and choose the right professionals to help you, especially in a competitive real estate market.
Here are some tips that can make the process easier.
1. Obtain your eligibility certificate
Your VA Eligibility Certificate is a document that shows you meet the military service or surviving spouse requirements to apply for a VA loan. You’ll need it for loan closing, so it’s a good idea to do it early on, says Kevin Parker, vice president of the Navy Federal Credit Union.
You can apply for the certificate through the VA or ask a VA approved lender to help you obtain it.
2. Compare Experienced VA Mortgage Lenders
Not all lenders offer VA loans, and of those that do, some focus more than others on working with military borrowers.
“If you want a good steak, you probably want to go to a good steakhouse,” Parker says. Likewise, if you want a VA loan, choose a lender who provides a lot of VA loans.
The VA loan program has its own rules, so you want a lender who understands the requirements and can walk you through the process. Ask potential lenders if they have loan officers who specialize in working with military borrowers.
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Another consideration when buying from a lender: See if your state has home buying programs to benefit first-time buyers or veterans, Rodgers says.
Many public housing finance authorities combine low-interest mortgages, including VA loans, with closing cost and down payment assistance programs. Some states also offer tax credits for home buyers that you can use on your federal income tax return. To take advantage of the programs, you must work with a participating lender; your public housing agency can provide you with a list.
You will want to get pre-approved for a loan before you start looking for a property. A pre-approval letter from a lender will indicate how much you can borrow and show sellers and their agents that you are financially qualified.
Apply with at least three VA approved lenders. Once you have an address for the property you wish to purchase, a lender will provide you with a loan estimate, which sets out the terms, estimated monthly payment and closing costs, as well as the annual percentage rate – your rate. ‘interest, including fees. Compare loan estimates from different lenders to choose the best loan for you.
3. Decide how you will pay the costs of the loan
Like other mortgages, VA loans have closing costs, which are fees charged to cover services and expenses such as appraisal, inspection, title and origin fees. Closing costs typically range from 2% to 5% of the loan amount and are detailed in the loan estimate.
Another cost is the VA finance charge, a one-time fee that most borrowers will pay, depending on the amount of the down payment and the prior use of the VA loan benefit. The 2020 finance charge for a zero-down loan on a first VA loan is 2.3% of the loan amount.
Here are the options if you cannot pay these fees in advance:
- Roll the financing costs into the loan. This will increase your loan amount and your monthly payments, and it will mean that you will pay interest on finance charges over the life of the loan.
- Ask the seller to intervene. The VA allows the seller to contribute up to 4% of the loan amount to cover certain closing costs and the costs of financing the VA. Keep in mind, however, that sellers are less likely to make concessions when the competition to buy homes is fierce.
- Find out if your lender is willing to cover closing costs in exchange for paying a higher interest rate. Realize that this will increase your monthly mortgage payment.
- Request help with closing costs through a state home buying program for first-time buyers or veterans.
4. Prepare to bring money to the table
Although VA loans do not require a down payment in most cases, you will still need a little cash to buy a home. Here’s why:
Increase chances of approval
Lenders will look at your savings to make sure you’re financially stable enough to overcome any obstacles, such as unexpected expenses, after you buy the home, says Anthony “TJ” Powell, executive vice president of AAFMAA Mortgage Services. , a subsidiary of the United States Armed Forces Service Association. “A lender will want the applicant to show that they have the ability to save money and that they are not making a living from paycheck to paycheck.”
Cover the deposit deposit
You will need some money to bid on a house. The down payment is a deposit that shows the seller that you are serious about purchasing the property. The money is applied to the purchase, returned to you at closing, or forfeited if you withdraw from the deal for no good reason. The deposit is usually around 1% to 3% of the loan amount, but can vary widely depending on the market.
Pay moving and other expenses
You will need some cash for moving, house maintenance, furniture, and other homeownership expenses. “Buying a new home is stressful for a buyer, and the financial stress will only add to the overwhelming feeling,” said Powell. “Having cash savings will reduce stress and make the home buying experience easier. “
5. Choose an experienced real estate agent serving military clients
Because the VA loan process has special requirements, it is important to work with a real estate agent who understands VA financing. A good agent will walk you through the process and can advocate on your behalf with sellers. For example, an experienced agent will understand the VA appraisal process and can direct you to homes that may meet the minimum VA ownership requirements.
An agent who has experience with military buyers will also understand your specific housing needs. Rodgers, who was wounded in combat while serving in the US Army Special Forces in Afghanistan, helps each of his buyers create an “exit plan” to sell or rent the property if they need to move more. late.
Interview a few agents and ask about their experience serving buyers using VA loans and any additional training they’ve taken, such as the National Association of Realtors “Military Relocation Professional” certification. Don’t assume agents have VA loan expertise just because they served in the military, Rodgers says.
This article is reprinted with permission from NerdWallet.
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Barbara Marquand is a writer at NerdWallet. Email: email@example.com. Twitter: @barbaramarquand.