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Is a VA Loan Right For You?

Posted on Monday, Nov 18, 2013

While eligibility requirements limit the number of people who can take advantage of what's offered, the Department of Veterans Affairs Home Loan Guarantee program should be of keen interest to those who qualify.

As outlined in this helpful video provided by the VA, qualified applicants will meet one or more of the following criteria:

  • A current or former active member of the armed forces with a minimum of 90 days of active duty.
  • A surviving spouse of a veteran killed in the line of duty.
  • A spouse of veterans listed as MIA or POW.
  • Reservists and National Guard member with at least six years of service.
  • A foreign veteran who served with Allied forces during WWII.
  • Some members of the Public Health Service.

If you fall into one or more of those categories, a VA loan may very well be your best option for home ownership.  But, as with any funding option, there are both pros and cons to consider, and we always recommend discussing all your options with a knowledgeable Gulf Winds Mortgage Team member before making any decisions.

The Pros

The single biggest factor that draws most people to a VA loan is that no down payment is required.  In difficult economic times, the need for thousands of dollars of cash up front stops many potential home owners before they even start pursuing their dream.

In addition, VA loans don't require PMI (private mortgage insurance), and lenders aren't allowed to require borrowers to obtain it.  This can save thousands of dollars over the 2-5 years that a typical PMI premium is attached to your monthly mortgage payment.

Federal regulations limit the amount of appraisal fees, closing costs and origination fees that can be charged on mortgages insured by the VA, further controlling the overall cost of the home.

The Cons

As of 1982, a one-time funding fee of between 1.25% and 3.3% was levied on VA loans.  Since this fee is not required up front like a down payment, most borrowers simply roll it into the loan.

However, you should note that just a 2% fee (the typical funding fee charged on a VA loan) can cost over 10% of the original loan value over the life of a 30-year mortgage.  The fee is lowered if the borrower places a minimum of 5% down at the time of the purchase, so if that's an option for you, it will save you a lot of money in the long run.

There is also an upper limit on the VA loan guarantee: $240,000.  While that covers most of the average homes being purchased, it does preclude homes in some areas of the country where real estate prices are very high, such as Manhattan or Los Angeles. 

In addition, even if a veteran is considered eligible for the full $240,000 in VA loan insurance, that does not automatically mean they are eligible for that much in mortgage funding.  Beyond all the eligibility requirements, borrowers will still need to have adequate income and sufficiently good credit to be approved for the loan by the private lenders handling the transaction.

So, while a VA loan may very well be the best option for you, it's best to research all available options before settling on one route to home ownership.  Gulf Winds offers VA, FHA, and USDA loans along with numerous conventional loan products that could be a perfect fit for you. Apply online or call us today to find out more!

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