You don’t have a lot of money saved up, and your credit score could use a lot of improvement. How can you possibly get a mortgage loan? Well, if you served any time in the military, you could get an amazing VA home loan that doesn’t ask for a dime for a down payment.
“There are a lot of common misconceptions about the VA loan, and a lot of wrong information,” says Ken Bates, branch manager/co-founder of Military Homes Loans in San Diego. He and his wife, Karen, are both military veterans and have financed homes for the VA loan program besides helping hundreds of other military families use their VA benefits to purchase their own home.
“You can use a VA loan over and over again. You can have more than one VA loan at one time, and it’s not just for first-time home owners,” he says.
The VA Home Loan is a mortgage option given to those active in the military, veterans and surviving spouses. The loans come from private lender but are guaranteed through the Department of Veterans Affairs (VA).
According to a press release late last year, the VA said it has guaranteed 21 million home loans since the VA Home Loan Program began in 1944 through the GI Bill. The last one million loans were guaranteed in the last two years.
Nearly 90 percent of all VA loans are made with no down payment. In fiscal year 2014, the Home Loan Program guaranteed 35,000 loans per month. The total value of all outstanding VA loans exceeds $380 billion, and the program also helped 80,000 borrowers avoid foreclosure last year.
Research from the Mortgage Bankers Association shows that mortgages guaranteed by the VA have the lowest foreclosure inventory rate the past 6 ½ years compared to all other types of home loans in America.
To look into a VA loan, Bates encourages people to “find someone that lives and breathes VA loans.”
“Some loan officers don’t even know the basic information about the loan. They’ve never done one. So, when you call them, ask if someone can have more than one VA loan at a time, and if they say, ‘No’, say goodbye. If they don’t know that type of stuff, what else don’t they know?” he says.
Some of the remarkable attributes that this loan has, Bates says, include:
Zero Down Payment
You don’t have to have a dime for the down payment. “What’s neat about that is that real estate is one of those rabbits you chase. When you get closer, it moves. For instance, by the time some people save that 3.5 percent for an FHA down payment or 5 percent for a conventional loan, the interest rates have gone up or the home value has gone up,” he says.
By having the ability to get a zero down payment loan, you get to jump in right away. A homeowner can be in a house 30 days later after finding that dream house.
No Mortgage Insurance
This means that it makes this loan significantly cheaper than anything out there, Bates says. There is a small upfront insurance added into the loan, but it doesn’t make a big difference in the payments.
If you have a VA loan and an FHA loan at 4 percent interest rate on a $400,000 30-year loan, you will pay a $14,000 down payment for the FHA loan. Plus, they will add in $271 a month for FHA mortgage insurance.
“The difference is that you will pay $2,442 a month for the VA loan and $2,638 monthly for the FHA loan once everything is said and done,” he says. “A VA loan is usually 10 percent cheaper. The PMI really makes the VA loan so much better. It’s something when clients see the numbers, they get it,” he says.
Interest Rate Lower than Conventional Loans
Interest rates for VA loans are usually ¼ to ½ percentage lower than a conventional loan.
“It doesn’t make sense that a borrower who is putting zero down with marginal credit will get a better interest rate than someone with 20 percent down and a n A-plus credit score,” he says.
But the reason is that the government backs the program. The VA guarantees 25 percent of the loan, he says.
Bates has helped military folks and veterans from age 21 years to 86 get a loan. And there are plenty more out there that are eligible to get a VA loan. For instance in California where he lives, there are 1.9 veterans and only 116,860 active VA loans. The percentage of those using the VA for their mortgages is only 6 percent. Some states are doing a better job of helping veterans get loans such as Virginia with 16.8 percentage of use or North Carolina with 15.4 percent.
“The perception is that a VA loan is a difficult pain the butt loan to avoid. Some people are still talking veterans out of getting one, “Bates says. “They tell them that it’s not as good as it sounds. But it is as good as it sounds.”