With the currently tight housing market and the potential for higher interest rates, homebuyers can be forgiven for a bit of high anxiety.
Homebuyers who are veterans, however, may not realize the advantage they have over others. Although the Federal VA Home Loan Program provides numerous benefits for eligible homebuyers, some veterans may have misconceptions or might simply be unaware of the program.
With favorable terms and conditions, the VA Loan Program has granted more than 22 million loans nationwide for home purchase, construction and refinancing since 1944. In 2016, there were a total of 7,850 purchase and refinance VA loans in Wisconsin, a 9.2 percent increase over 2015. VA loans in 2017 surpassed that total, with 8,630 loans completed. The average loan amount was over $194,000.*
In addition to learning about VA loan benefits, a critical strategy for veterans seeking a lender for a mortgage loan is to find out in advance how the loan will be serviced after approval. Some lenders sell VA loans to a larger financial institution, which could require a higher credit rating. But other lenders deal directly with the government and service all VA loans until they are paid, which can yield a lower interest rate.
Here’s a look at some common misconceptions about VA loans, along with facts:
Myth: You can borrow only once.
Fact: After you purchase a home with a VA loan, your eligibility can be restored for a subsequent home purchase, with proof you sold the first home and paid that loan in full.
Myth: It’s a loan from the federal government.
Fact: A VA loan actually is issued by an approved lender, often your local bank, but is guaranteed by the U.S. Department of Veterans Affairs.
Myth: You must be a first-time homebuyer.
Fact: Although some loan programs are designated for a first-home purchase, VA loans are not (also see bullet above).
Myth: You need mortgage insurance.
Fact: No, you won’t. In some areas of the state, that could save the veteran as much as $200 per month.
Myth: There are income restrictions.
Fact: There are no restrictions on income. The program is open to any eligible veteran. Eligibility is confirmed by a certificate obtained through the VA. Generally, a veteran with an honorable discharge will qualify after serving 181 days during peacetime (active duty), 90 days during war time (active duty), or six years in the Reserves or National Guard. A spouse of a service member who died in the line of duty or because of a service-connected disability also may qualify.
Myth: Prohibits accessing other state or local government loan assistance.
Fact: In some circumstances, income-eligible veterans can combine a VA loan with the Wisconsin Housing and Economic Development Authority (WHEDA) Tax Advantage Program to receive a Federal income tax credit. Other state and local assistance programs may also be available.
Myth: VA loans are not for buyers who have a down payment.
Fact: Having a down payment actually reduces the fees attached to a VA loan. For example, with no down payment, the VA funding fee would be 2.15 percent. With 5 percent down, that fee decreases to 1.5 percent and to 1.25 percent with a down payment of 10 percent or more.
Myth: VA loans always carry upfront funding fees.
Fact: The fees are waived for veterans who have a service-related disability. The funding fee exemption is noted on the certificate of eligibility for the loan, meaning the veteran does not have to draw attention to what often can be a sensitive matter. When funding fees are required, they can be paid as part of closing costs, paid with a credit from the seller as part of the Offer to Purchase, or financed into the loan. You can check out Landmark 24 Realty and similar sites for additional guidance and listings.
Information about VA loans may be found at VA Home Loans.
*VBA Annual Benefits Report Fiscal Year 2016 (Numbers are subject to change as reporting is finalized.)
Wisconsin Bank & Trust is a member of the FDIC and an Equal Housing Lender.
