- Those who are active military or who have served previously may be eligible for government-backed mortgage loans from the Department of Veterans Affairs (VA)
- Because VA loans can be secured without a down payment, and do not require the borrower to pay mortgage insurance, they can be advantageous to buyers who don’t have a lump sum to put down at closing.
- VA borrowers should understand that the VA charges a VA funding fee, a one-time fee that helps to keep the VA loan program in operation. The fee will depend on your service, how much you put down at closing and if you have previously funded a loan through the VA.
When financing a new home, you’ll have many mortgage loan options. Military personnel, veterans and their families may consider applying for a mortgage loan through the U.S. Department of Veterans Affairs (VA), which can offer advantages in the short-term and over the life of the loan.
Here are insights you can use as you determine if a VA loan is right for you.
Remember, every buyer is different, so it’s important that you work with a professional who understands your background. Your REALTOR® can recommend a mortgage loan officer or financial advisor who can provide a personalized, professional assessment of your finances.
VA loan eligibility
Many military, veterans, reservists and National Guard members can apply for a VA loan. In general, VA loan eligibility is available to those who have served:
- 90 consecutive days of active service during wartime
- 181 days of active service during peacetime
- More than 6 years of service in the National Guard or Reserves
If you are a military spouse of a member who died on active duty, or due to a disability or injury from military service, you are also eligible to apply for a VA loan.
VA down payments and loan limits
One major benefit to a VA loan is that some VA financing options do not require a down payment. This can help buyers who can afford a monthly mortgage payment, but do not have liquid assets to put down at closing.
Much like FHA loans, VA loans are intended to act as “helper” loans to veterans and their families. They aren’t, however, meant to fund multi-million dollar estates in the most expensive ZIP codes of the country. In order to ensure responsible homeownership for VA loan applicants, the VA has loan limits based on the average cost of living for each county.
In Minnesota and Wisconsin in 2018, qualified VA borrowers can apply for a home worth up to $453,100 without a down payment.
VA funding fee
One factor to consider as you apply for VA financing is that VA borrowers typically pay a one-time funding fee. This fee can be included in your financing (loan package), paid out of pocket by the buyer or paid by the seller, but it must stay within the maximum seller contributions.
Your funding fee will vary based on:
- The amount you put down at closing
- The type of veteran (Regular Military vs. Guard/National Reserves)
- If you are securing a VA loan for the first time
Some FHA and conventional borrowers are required to pay monthly mortgage insurance, which protects the lender against risk of default or delinquency. One major advantage of VA loans is that borrowers do not have to pay mortgage insurance, even if they don’t put anything down at closing. This could save VA borrowers thousands, or even tens of thousands of dollars, over the life of the loan.
There are a variety of ways for VA borrowers to cover closing costs so they don’t have to pay them out of pocket. First, VA buyers can ask for the seller to cover the cost of closing as long as they fit within the seller-paid contribution limitations. This is a common arrangement in a buyers’ market, but when the inventory of homes for sale is low (as it is now), sellers may have ample offers and may not need to accept this arrangement.
Additionally, borrowers can finance their closing costs. To do this, the lender will typically adjust the loan interest rate a bit higher to cover the cost of the closing over the life of the loan.
Last, borrowers may secure a gift that covers the cost of closing or they can work with their loan officer to find an assistance program that covers the closing cost of their new property.
Ready to get started?
Our local experts help veterans secure financing every day and we’d love to offer insights and support as you begin the journey to homeownership. Reach out to our customer care team to discuss your options.
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