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 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.
Many military, veterans, reservists and National Guard members can apply for a VA loan. 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.
In general, members who have been in active duty qualify after serving for six months. If called into active duty, reservists and National Guard members may also apply for a VA loan after six months; if they remain off active duty, they can apply after six years of service.
Down payment and loan limits
The average VA borrower has $7,000 in assets, so many applicants are happy to know that some VA financing options do not require a down payment. Additionally, VA loan limits follow the same standards as FHA loan limits, which are issued based on the average cost of living for each county. In Minnesota and Wisconsin, qualified VA borrowers can apply for a home worth up to $417,000 without a down payment.
One factor to consider as you apply for VA financing is a one-time VA funding fee that many VA borrowers must pay, unless waived. This fee can be included in your financing (loan package), paid out of pocket or paid by the seller, but it must stay within the maximum seller contributions.
According to the Department of Veterans Affairs, “regular military” borrowers with a 10 percent down payment or more will pay a fee of 1.25 percent of the loan’s total amount. If VA borrowers do not put anything down, their funding fee will be 2.15 percent of the loan amount. See the full funding fee details for reservists, National Guard and for other down payment amounts.
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 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. In most cases, the lender will 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 REALTOR® 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 today to discuss your options.
Looking for a fresh start?
If you’re a veteran in search of a new career, we’d love to talk with you. While we could never thank you enough for your service to our country, we are committed to helping veterans find a new professional venture once they return home. Our Veterans to Realtors program offers free training and resources to both veterans and their spouses. Read more about the program and contact us if you’d like to discuss it in person.