4 Myths and Facts about VA Loans
There’s a lot of misconceptions about the rules with VA Loans, and I wanted to set the record straight.
Knowing this information can mean the difference between getting your dream house, or struggling to get your offer accepted.
And, if you’re a veteran, thank you for your service!
As a very small thank you for serving our country, the government created an amazing loan product when buying a home. So, what is the VA loan and who qualifies? A VA loan is a loan product for purchasing a home anyone who has served or is serving in the military. A little known fact is surviving spouses also can use a VA loan when buying a house!
The VA loan is an amazing loan that requires 0% down. Most other loan products require a down payment of at least 3.5 or 5 percent of the purchase amount for the home. That means veterans don’t need to bring extra cash to closing because the loan will pay for the purchase of the entire house! Typically, mortgage insurance is required for loans where the borrower, aka the buyer, puts less than 20% down. Depending on the size of the loan, mortgage insurance can cost a few hundred dollars each month.
Finally, VA loan interest rates are typically lower than FHA or conventional loans.
This loan is sounding pretty good isn’t it? Less upfront cost and a lower mortgage payment than other loans.
But, there are a lot of misconceptions about this loan product. And I want to set the record straight. Because, when someone is selling their house, they typically want to sell it for the highest price possible, with the least amount of headaches as possible. That means reducing the likelihood the buyer can’t follow through with the contract.
You can only use the VA loan once.
That’s totally false! It’s true you need to use it as your primary residency. But, you’re able to use this loan many times! If you’re being relocated by the military or switching to a new office, you’re allowed to get another VA loan without paying off the first one.
VA buyers aren’t as qualified as conventional buyers.
There’s this perception that VA buyers aren’t as qualified as buyers using a conventional loan. People think this because lending requirements for a conventional loan are higher, and requires a larger down payment. But it’s just not true all VA buyers are less qualified. To get a conventional loan, you only need a 620 credit score and a debt to income less than 50%. The AVERAGE veteran has a credit score over 700 and a debt to income ratio of less than 45%.
VA buyers don’t have as much cash available as conventional buyers because it’s a 0% down loan.
The amount of money required for the down payment for the loan has no correlation with how much money someone has. In fact, having a low down payment can mean the buyer has more cash available because they don’t have to use it for a down payment.
VA appraisals always come in low and makes the seller fix everything in their house .
In this hot market, buyers and sellers both get concerned the appraisal will come in lower than the agreed purchase price. This can derail a deal and prevent the buyer from getting the house. There’s a perception that VA appraisals come in low and the appraiser will make the seller fix issues with the home. The VA appraiser can and does call out safety concerns that need to be fixed prior to closing. But, they’re only safety concerns, like missing railings or exposed electrical wires. Things an occupancy inspector would call out anyways. VA appraisers don’t call out things like ugly cabinets or a cracked shower tile.
Secondly, VA appraisals come in at or above the purchase price 85% of the time. Freddie Mac and Fannie May, the 2 largest buyers of conventional loans, appraise only 80% of the time. The VA is the only loan program that allows lenders and real estate professionals to weigh in on the appraisal. Arguing why the home’s value is in fact what the purchase price is. On other loans, agent’s can’t tell the appraiser what other homes in the area sold for and why the home is valued what the agreed purchase price is.
It’s really sad, but there are lots of myths surrounding VA loans. And, sadly, it makes it harder sometimes to get an offer accepted using VA financing. It’s truly awful because men and women served our country and earned this benefit of using a VA loan. And it’s an amazing loan product!
That’s why it’s important for you to use an agent who knows the facts about VA loans to help you stand out when making an offer on a home. Two ways I use this information is to have the buyers lender call the listing agent and share how qualified the buyer is. So the agent knows there’d be no issues with the buyer getting to the closing table. The second is I share these facts with the listing agent, and why VA financing is easier to work with and a greater likelihood of protecting the agreed upon sale price.