All You Need to Know About VA Financing
I believe VA financing is the best purchase product available in the market today, especially as the VA makes it easier for their members to qualify to purchase a home, and as of today, VA buyers can get 100% financing at an incredible interest rate of 3.75% on a 30 year fixed. Here is all you need to know about VA financing, so you know who qualifies as well as some tips on how to get sellers to accept your VA purchase offers.
Who is eligible for VA financing?
A veteran is eligible for VA financing if he/she served on active duty in the Army, Navy, Air Force, Marine Corps, or Coast Guard and was honorably discharged after 24 continuous months of active duty, or the full period for which called, or ordered to active duty, but not less than 90 days (during wartime) or 181 continuous days (during peacetime).
3 reasons why VA financing is the #1 loan program
1. VA buyers can purchase with $0 down
Did you know that eligible veterans are allowed to take out a mortgage up to $537,500 and 100% financing here in San Diego? Check here for your County limit as designated by the VA, VA Loan Limits for each county for 2011 . VA financing is still the only loan program that allows 100% financing in any area (FYI the USDA allows 100% financing, but this is strictly for rural properties), as the FHA still requires a 3.5% down payment and most conventional loan programs still require anywhere from 3% to 20% down payments depending on the credit profile of the buyer, which is still putting home ownership out of reach for many first time home buyers.
2. Easier qualification rules for VA buyers
Most banks have easier qualifying and credit guidelines for VA buyers. Because many first time buyers typically don’t have a lot of established credit, getting qualified for a conventional loan can be difficult. Most VA lenders only need a 620 credit score to offer 100% VA financing, whereas FHA and Conventional financing now require higher credit scores. Also some VA lenders allow a buyer to qualify up to a 60% debt to income (DTI) ratio on VA loans, Fannie Mae is now capped at 50%.
3. VA buyers pay no monthly Mortgage Insurance
Another huge advantage for VA buyers is that they do not have to pay any monthly mortgage insurance (MI) on their loans, as these are backed by the government. Remember, most conventional loans require mortgage insurance if you put down less than a 20% down payment, and all FHA loans now require mortgage insurance. So having no monthly mortgage insurance allows VA buyers to either purchase more home, or have have a lower monthly mortgage payment.
3 Tips to get your VA purchase offers accepted
There is a misconception out there that sellers discriminate against buyers using VA financing because of the following three reasons: 1. The low down payment requirement means less skin in the game. 2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs. 3. The (false) belief that VA appraisers are less generous in their appraisals. Here are 3 tips to debunk seller held credit myths about VA financing, so you can ensure your purchase offers will get accepted.
1. The zero down payment requirement means less skin in the game
We can’t argue with this because VA does allow 100% financing, so this does amount to very “little skin in the game”. But what we can do, is strengthen the VA buyers profile and show the seller that the borrower has a DU approved loan (automated underwriting approval) and also include income and asset documentation (proof of reserves etc) to support that approval. This will assuage the fears a seller might have about a buyer (and that buyer’s lender) performing with their financing.
2. The (misguided) perception that the seller must pay for some or all of the buyer’s closing costs.
On VA transactions, the seller is NOT required to pay ANY costs for the buyer, but is allowed to pay up to 4% towards a VA buyers costs. There are certain “VA non-allowable” costs for which a VA buyer is forbidden to pay, (for example No escrow fees, wiring, notary, tax service or processing fees are allowed to be charged).
So here is a good tip to help get a VA offer accepted, so this issue of who covers these VA non allowable fees does not become an issue when negotiating a purchase price. It is advised that the following language be inserted in to the purchase contract so the seller is not put off by the VA offer: “Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related “non-allowable” costs to be borne by lender”.
3. The (false) belief that VA appraisers are less generous in their valuations.
There is a common misconception that VA appraisals usually come in lower. While I am sure that a lot of people have had a VA appraisal come in lower, I am sure they can say the same about FHA and conventional financing too. Underwriters and appraisers will point out, that as long as the property is properly priced and the offer is reasonable, the VA appraisal should go smoothly. I have been averaging at least 2 VA transactions a month for the past few years and I have only seen a value come in lower in maybe 10% of these VA transactions, which is probably typical for other forms of financing too.
TIP. One of the most common appraisal “hits’ I have seen is when the purchase price is increased, above listing price, to accommodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. If the appraisal does come in low make sure the buyer has additional reserves to potentially come in with more cash to close. Remember the lender will only approve financing to 100% of the appraised value.
Supporting our Troops
Personally I love working with members of the military, my wife has several family members in the military, so I know from first hand the special sacrifices they make for all of us on a daily basis, so it feels good to know you are giving back a little to our armed forces by helping them obtain home ownership. As a VA buyer is able to purchase a home with 100% financing and get an interest rate of 3.75% on a 30 year fixed, it really is a wonderful opportunity for our military friends to buy a home right now.
If you have any questions in regards to VA loans please feel free to contact me directly at 858-200-9602. My company is approved directly with the VA, so we are able to offer all the best programs that are available to our military friends. I look forward to chatting soon.
Tags: 100% VA loans, All You Need to Know ABout VA Financing, how to qualify for VA financing, VA financing, VA loans
This entry was posted on Tuesday, September 20th, 2011 at 4:49 pm and is filed under All You Need to Know ABout VA Financing, Michaels Housing and Market Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.