VA home loans provide the active military members with a unique opportunity to buy a home at a competitive rate, and often with no money down. In most cases, the VA loans present the best way for the military members to own a home, but it does come with conditions. As such, familiarizing yourself with some facts, especially the costs and fees associated with VA home loans, will help determine whether buying a house using the VA loan option is the best option for your family.
More than 22 million service members have so far used the VA home loans since 1944, which makes VA loans a popular way of buying a home. When people hear the phrase, “no down payment,” they often do not realize they will need money to close the deal.
“Zero down does not mean zero to close,” points out Gwen Chubirko, a broker in charge at Genesis Realty Co. in Kannapolis, NC.
Here’s what you need to know about the VA loans
To get a VA loan, you must first get the VA Home Loan Certificate of Eligibility (COE) from the Department of Veterans Affairs. The veterans, active duty, guard and reserve members, and military spouses all potentially qualify for this certificate. However, you need to understand that while the COE is necessary, it only allows an eligible individual to apply for a home loan, but it doesn’t guarantee that you will get approval.
Apart from the COE for a VA loan, the property that you purchase has to meet specific requirements to be VA loan eligible. Most of the foreclosure properties that would easily qualify as fixer-uppers do not meet the minimum requirement for a VA loan.
These requirements only focus on making sure that home is sound in terms of its structuring and could be lived in comfortably in the state in which it’s purchased. Just to mention a few hiccups, if a home is missing flooring, or has a bathroom that needs repair, it may not qualify for a VA loan.
The costs associated with VA Loans
Fortunately, you do not have to go in blindly, and to help you along the process; we have a team of VA loans-savvy VIP agents who are very ready to be your ally in the journey to homeownership. They will help you in estimating the costs you will need throughout the process, no matter where you live.
While the amount needed to close varies significantly with location and situation, experts agree that usually, expect to need about 3% of the purchase price on hands to close.
The Loan Amount
The price of a home that you intend to purchase using the VA loans largely depends on your income. For instance, the specific amount that you can borrow will be determined by your monthly salary, which has to be more than 35% of your monthly mortgage payment, tax payments, and any other monthly debt payments.
Quick math: let’s say you can qualify for a $150,000 30-year loan. On top, you have $500 debt payments that you have to make every month, this means, you will have to make at least $2100 a month.
Fees associated with VA loans
Just like every other mortgage, VA loan comes with closing costs and some expenses on top. The closing costs associated with the VA loans can average anywhere from 3 to 5 percent of the loan amount. However, the costs can vary largely depending on the location, the lender you are working with, and many other factors. For most veterans, closing costs are one of the most confusing parts of funding along the homeownership journey.
And that’s understandable because closing costs of a loan can involve different kinds of costs and fees. In mortgage transactions, you’ll hear the closing costs, mostly referred to as the “settlement charges.”
Some of the costs and fees represent the actual costs of transacting a loan. Some others will involve expenses like homeowner insurance and property taxes. Some other expenses will need to be paid even before you get to the deal table, while some of the costs will need to you wait until your closing day.
The fees and costs of VA loan will depend on a host of factors, from your lender and loan type to location and so much more.
Some of the VA related closing costs include;
- The origination charge.
- The appraisal fee.
- The title charges.
- Discount points.
- Credit report.
- Well, septic and termite inspection fees.
Some of the non-loan costs you will need to be aware of include;
- The prepayment of your property taxes and homeowner insurance.
- Daily interest charges.
- Recording fees.
- Homeowner Association Fees.
- Home warranty fees.
- Real estate commissions.
We’ll get much more in detail about these fees and costs in another article as well as explain the difference between the closing costs and concessions, so make sure to follow us on our social pages to get notified.
All the recipients of the VA home loans are obligated to pay a funding fee to obtain the loan unless they are exempt because they receive or are eligible to receive a VA loan compensation for service-connected disabilities. The fee payable is based on the following scale by VA.gov;
- First-time use with no money down – 2.3%
- 5 percent down – 1.65%
- 10 percent down – 1.4%
Second-time use VA loan funding fees are as follows:
- First-time use with no money down – 3.6%
- 5 percent down – 1.65%
- 10 percent down – 1.4%
Who Doesn’t Need to Pay the VA Loan Funding Fee?
The veterans that have been injured, resulting in disability during service and the surviving spouses, are exempted from the fee. The VA provides a list breaking down people exempt from the fee. These include;
- Veterans are receiving VA compensation for service-connected disabilities.
- Veterans entitled to receive VA compensation for service-connected disabilities but receive retirement pay or active service pay instead.
- Surviving spouses of veterans who died in active service or from a service-connected disability.
- Service members on active duty who provide (on or before the date of loan closing) evidence of having been awarded the Purple Heart
Here’s a tip, instead of paying an itemized list of the fees and costs associated with the loan, you may choose to pay a one percent fee to the lender who will then cover all the closing costs for you. Suppose you want to have your closing costs rolled into the total cost of your mortgage; you must then increase the amount of your mortgage. However, this is a decision that will have to be approved by your lender.
Remember also that the amount of VA loan may not be more than the appraised value of the property. Therefore, if you purchase a home at the appraised value, you may not be able to roll closing costs into your mortgage. Before you begin the process, talk to our team of VIP Agents spread across the country. To check whether we have agents in your county, click the following link https://thepowerisnow.com/vipagentsservices/. You can also contact me directly for a referral if we do not have an agent in your area. Stay up to date with current real estate news and housing developments by visiting our blogs page at https://thepowerisnow.com/blog/ daily. If you’d like to set an appointment and speak to me directly, use the following link, https://calendly.com/thepowerisnow/ericfrazier.
Disclaimer: The views and opinions of Eric Lawrence Frazier are his own and do not necessarily represent views of First Bank or any organization affiliated with Eric Lawrence Frazier, or the Power Is Now Media Inc. First Bank is an Equal Credit Opportunity Lender. Eric Lawrence Frazier MBA is also a Vice President and Mortgage Advisor with First Bank. NMLS#461807 and a California Licensed Real Estate Broker DRE# 01143482. Email: Eric.firstname.lastname@example.org. Ph: 714- 475-8629.
Eric Lawrence Frazier MBA
President and CEO
The Power Is Now Media Inc.