Active military and veterans can get jumbo home loans guaranteed by the VA. Interest rates are competitive, down payment requirements are much lower, and private mortgage insurance is waived. So many people are eligible for a VA Home Loan and never use it.
VA Home Loan for Military Members and Veterans
In his 30-year career with the Air Force, Chief Master Sgt. Jim Roy and his wife, Paula, lived in 12 different homes. When Mr. Roy retired last year, the couple settled down in a home of their own—with a little help from the VA.
Charmed by the friendly people and mild winters, the Roys decided on the Charleston, S.C., area. They found a four-bedroom, 3½-bath house for themselves and their 14-year-old twin boys, Caleb and Colby. “My wife and I saved for 31 years, and this is the house we wanted to be in,” Mr. Roy, 50 years old, says.
The house, built in 2008, had a purchase price of $575,000, which normally would require a jumbo mortgage and a 20% down payment because it exceeded the area’s $417,000 limit for conventional loans. (That limit can reach $625,500 in some high-price areas.) However, as a veteran, Mr. Roy qualified for a mortgage guaranteed by the Department of Veterans Affairs.
The VA Home Loans is available through banks and other private lenders. As with other mortgages, interest rates of VA-guaranteed loans can be either fixed or adjustable, depending on the lender. Down payments are low, if required at all. Private mortgage insurance requirements are waived as well. The loans can be used only on primary residences and not on secondary or vacation homes.
The Roys got their VA Home Loan through Columbia, Mo.-based Veterans United Home Loans, a national lender that specializes in VA loans. If they had borrowed less than $417,000, no down payment would have been necessary. By going above this threshold, they had to make a down payment that was 25% of the portion that exceeded the limit. Their $575,000 purchase exceeded the limit by $158,000, so the Roys were required to put down $39,500. The Roys put down a little extra to lower their monthly payments and got a 30-year, fixed-rate mortgage at less than 4% APR.
VA-guaranteed loans can go even higher than other government-backed loans in some high-cost areas. For example, a veteran can pay no money down on a $1.05 million mortgage in Alameda and Marin counties in California’s San Francisco Bay Area. Lenders can provide specific details.
“Veterans and service members purchase homes for the same reasons as the general public, tied to work and their desire of where they want to live,” says Jeff London, deputy director of the VA Loan Guaranty Service, which operates under the VA. “This program allows them to purchase a home where they choose.”
More than 1,500 lenders nationwide, from big banks to local credit unions, closed at least one of 630,000 VA-guaranteed loans in 2013, according to the department. About 11% of borrowers made a down payment, either by choice or as required by the loan limits. The percentage of loans that exceeded limits has been increasing, up from 1.4% of loans in 2008 to 3.4% in March 2014, Mr. London adds.
The VA Home Loan mortgage benefit dates back to the original GI Bill of Rights passed in 1944, which offers college tuition, health care and other benefits to those who have served in any U.S. military branch, including the Air Force, Army, Coast Guard, National Guard, Navy, Marines and Public Health Service Commissioned Corps.
Still, many veterans don’t know about the mortgage benefit, much less that they can use it to buy a luxury home, says Chris Birk, director of education at Veterans United, the Roys’ lender. Only 68.2% of veterans were found to be aware of the home-loan guaranty program in a 2010 VA national survey.
Over the summer, Veterans United launched an awareness campaign in Honolulu, a popular area for veterans, where the median home price is $700,000, says Tony Dias, the company’s Honolulu branch manager. Separately, Joe Rogers, executive vice president at Wells Fargo Home Mortgage, says its loan officers across the country are being trained to first ask clients, “Are you a veteran?” Wells Fargo was the largest lender of VA-guaranteed loans in fiscal year 2013, with a total volume of $16.8 billion, Mr. Rogers said.
Here are a few more considerations for active-service military and veterans:
- Shop around. Qualification requirements may vary across lenders. Also, Mr. Roy says that when he looked for a VA-backed mortgage, some lenders were more familiar with the program than others.
- Rigorous underwriting. While the VA doesn’t specify a minimum credit score and may be more forgiving of a past credit issue, borrowers must have a satisfactory credit profile and undergo an income analysis to help ensure the homeowner can cover a house payment along with other expenses, says Mr. Birk.
- Entitlement limits. If a veteran has previously borrowed using this program, the amount that can be borrowed without money down may be reduced. Entitlements may be restored over time, so borrowers should check with their lender to see if they can use the full amount, Mr. Rogers says.
Nick & Cindy Davis work with several lenders here in the Tampa Bay area that are well versed in the VA Home Loan and its process. So if and when you are ready, we are just a click here or call to 813-300-7116 away.
originally posted by WSJ August 2014 in cooperation with Veterans United Home Loans