VA Mortgage Benefits and Financing Rates

The following is a guest post from Adam Gibson, an author of Accrued Interest, a popular financial world blog.  You can check out Accrued Interest for the latest on the bond market, treasuries, mortgages and other financial news.

If you’re a veteran or an active duty service member and are considering a home purchase this year, a VA home loan may be the perfect solution to finance that new house. Not only can they be great budgeting tools due to the variety of loan products available and flexibility of the loans, but VA loans have incredibly generous financing terms and a relatively easy qualification process.

VA loan eligibility is relatively straightforward and in order to qualify for a VA loan, veterans, active duty service members, or their families must meet the following criteria.

• Able to provide verification of a minimum of 2 years employment.
  - If employed by the present employer less than 2 years:
  - Verify prior employment plus present employment covering a total of 2 years, or
  - Provide an explanation of why 2 years employment could not be verified.
• A debt to income ratio of less than 41%, including the potential loan. The VA’s debt-to-income ratio is a total of monthly debt payments (housing expense, installment debts, etc.) to gross monthly income, and a ratio of more than 41 percent requires the following factors:
  - Sizable down payment
  - The existence of equity in refinancing loans
  - Little or no increase in shelter expense
  - Military benefits
  - Satisfactory homeownership experience
  - High residual income
  - Low debt-to-income ratio

These requirements are substantially less than nearly any other loan product on the market, and even veterans with poor credit history or bankruptcy may qualify for a VA loan. What’s more, while many borrowers with less than average credit scores may have to pay a large interest rate with conventional loan products, the slightly relaxed credit requirements for VA loan eligibility include the ability to qualify for a low interest rate. In fact, VA loan interest rates are generally about one percentage point lower than prime conventional mortgages and are currently around 3-4%.

In the past several years, the government and the loan industry itself has cracked down substantially on loan programs offering no down payment options, interest only loans, balloon payments, and on loans to borrowers with poor credit history, making homeownership difficult for many who have been adversely affected by the poor economy.

The VA loan program, however, has not been affected by these stringent new regulations and still provides a variety of products that can be tailored to your budget and financial goals. The main goal of the program is to ensure that as many veterans and service members as possible can fulfill their dream of owning a home and to that end, the VA offers a low down payment option as well as a zero down payment option. Additionally, closing costs for most VA loans can be rolled into the loan, saving the buyer from paying as much as $8,000 in fees at closing.

There are limits to how much borrowers can receive from a VA loan, but these limits are designed so that all borrowers, regardless of cost of living in their area can afford to purchase a modest starter home. Therefore, the limit is adjusted each year and varies depending on the cost of living in a buyer’s area and on the type of dwelling that’s being purchased with the loan. Single family dwellings have different limits than multi-family units, for instance.

To learn more about VA loans and how they can fit into your budget, visit www.va.gov or your local lender today. Since the VA doesn’t actually execute the loans itself, borrowers receive the loan products from local lenders (making the process that much more convenient) and your lender will have all the information you need on this unique and money saving program.

Questions from Crystal:
Have any of you ever used a VA loan?  If so, how did it work out for you?

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