Many veterans like Ernest Brown are choosing VA (Veterans Administration) home loans for their mortgages because they have become one of the most attractive and doable loans for military families. As a single man at age 49, Brown was able to buy a 1,500 square-foot home in Spring Valley, California with a VA loan. He had served four years in the Navy which allowed him to take advantage of getting such a loan.
Getting a VA loan was his best option because he did not need a down payment and the interest rates were lower than a conventional mortgage. He took out a $162,000 mortgage for the three-bedroom, 2.5 bath townhome.
He got a 4.25 percent loan with $0 down and $0 closing costs. His monthly bill is $1,195 which includes property taxes and home insurance.
Brown would have been able to get another type of loan. However, the process would have taken much longer. He would have needed to save for a down payment. With the VA loan he did not need to put any money down.
No money down is just one of the benefits of a VA loan. With a VA loan, the borrower is allowed to have a higher debt-to-income ratio** than they can with a conventional mortgage.
VA loans also do not have Private Mortgage Insurance attached to the monthly bill and have interest rates far lower than conventional home loans. The qualifications are much more lenient, too, than for a conventional or FHA mortgage.
For example, a borrower in a Chapter 13 bankruptcy can get a VA loan as long as they have performed as per the bankruptcy agreement for the past 12 months. VA loans also allow a borrower to apply much sooner after a Chapter 7 bankruptcy, foreclosure, or short sale.
Eric Morgan, 32, of Scripps Ranch, California, served in the United States Army from 2001-2005 in Operation Iraqi Freedom. He wouldn’t have been able to get a conventional loan because he had some money problems a few years before. He and his wife, Jacqueline, and two children, Jaeda and Liberty, just moved into their two-bedroom, two-bath condominium because of a VA loan.
“I was able to apply two years after my bankruptcy,” he says. “My bankruptcy was from a post-traumatic stress disorder related breakdown. I am so excited to be able to get a home in Scripps Ranch. This place is paradise.”
Although Morgan didn’t need a down payment, the family was able to put down $50,000 toward the home. He got the loan at 3.875 percent with closing costs of $6,600 for the $353,000 house. The family’s total payment each month is $1,800 including Home Owner’s Association (HOA) fees and property taxes. A conventional loan rate would have been 6.25 percent for him.
The minimum credit score for a VA loan at Fairway is 580 (Additional requirements must be met). For a conventional loan, the borrower must usually have a 620 score (Additional requirements must be met). Because these loans are more forgiving, require less to qualify, and have lower interest rates, they are the best mortgage available.
Those eligible for a VA loan must have sufficient income, suitable credit, and a valid Certificate of Eligibility, meaning they were discharged under conditions other than dishonorable and meet the certain service requirements listed on the Veterans Affairs’ website. Or they can be a spouse of a veteran.
Other benefits of the program include no prepayment penalty, the ability to refinance to a lower interest rate without an appraisal, and the ability to use the loan more than once.
Eligibility for a VA loan does not expire and is not a one-time benefit. Veterans can utilize the VA loan at any time and apply the benefits towards more than one loan.
*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
**Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
Written by: Lee Nelson