Hello again and Happy Veteran’s Day week to you all. Given that we are celebrating those who have put on the service uniform in defense of the Red, White, and Blue this week, I decided to write my blog post on VA Mortgages. VA Mortgages are one of the more commonly used government guaranteed loans (guaranteed by the VA), but there are still a lot of questions that many Veterans have when using them. Additionally, there are many Sellers who see an offer with a VA Mortgage for financing and wonder how that differs from a conventional mortgage. And, while there are many online resources relating to VA Mortgages, I’ll write a down and dirty list of the pros and cons of these mortgages from both a Buyer’s and Seller’s perspective.
To use a military term, the Bottom Line Up Front is This:
VA Mortgages are home mortgages offered to Veterans of any branch of the Armed Forces. It is available to any active duty Soldier who has served 90 days or more during war-time, 181 days during peace-time, or a National Guardsmen/Reservist who has served for at least 6 years. The mortgage can be used to finance 100% of the purchase price of the home and does not require Mortgage Insurance (most mortgages requiring less than 20% down do). The home must be the Buyer’s primary residence. There is also a funding fee that can be waived if you have a service related disability of 10% or more OR can be financed into the mortgage if it is the Buyer’s first time using the VA Mortgage. Lastly, there is a more “in-depth” appraisal where appraisers are verifying the home is safe for the Buyers to occupy.
Now, let’s dig into the pros and cons!
If you are a Seller, you might be leery of a VA Mortgage based on what you have heard. While some of those concerns may be valid, VA Mortgages are used to buy homes everyday, and are a very easy mortgage product to utilize if used for the right property.
- By the time a Buyer is using their VA Loan, they have already been vetted by credibility sources: Their lending institution and the VA (they should have their Certificate of Eligibility).
- Buyers are using a stable, proven mortgage program that has been around for over 70 years.
- You know that you are supporting/helping out a Veteran by working with this person!
- There will be a VA Appraisal, which is slightly more difficult to navigate than a normal appraisal. The Appraiser will verify the home is safe to move in, so they will check for peeling paint, hand railings on stairs, switch plate covers on light switches, etc. The good news is this is kind of stuff that Sellers have already taken care of. This is the same appraisal as an FHA or USDA mortgage.
- The buyers will likely be putting down a low amount of money. While this is common for many conventional loan programs today, the short answer is that the Buyer may not have a lot of skin in the game initially.
- The VA Mortgage gives you the opportunity to finance 100% of the property, so if you don’t have money for a substantial down payment this is a great way to purchase a property.
- No Mortgage Insurance. This can save a Veteran huge amounts of money over the term of the mortgage!
- Funding fee can be waived for service related disability or financed into the mortgage.
- Proven mortgage program with a very positive history of service and closing loans.
- If you finance 100% of the property, you have very little equity or perhaps even negative equity (underwater) in the property. If you have a rapidly appreciating market or are planning on staying at your home for several years, this will likely not be a problem. However, if you have to sell in the near future, you will not have much “meat on the bone”.
- In an area (such as the Chippewa Valley) that does not have a high percentage of veterans and therefore less folks using VA Mortgages, your offer may be viewed as not as strong as someone using a conventional mortgage.
- The VA Mortgage, as well as any government backed mortgage such as FHA or USDA, will limit the kind of homes you can purchase. For example: you will likely not be able to buy a “fixer upper” or an investment property that you will not live in.
As you can see, there are many pros and cons for all parties. My parting advice is this:
For Sellers: If you have a clean property with little deferred maintenance, I would argue that a VA Mortgage is just as good as any mortgage product. If the offer is strong and their pre-approval comes from a reputable lender, I would have ZERO objections to any VA Mortgage offer.
For Buyers: If you choose to use a VA Mortgage, try to make your offer’s terms as strong as possible. Have a pre-approval letter from a local, reputable lender. Try not to ask the Seller to pay for your closing costs if you don’t need them to. Lastly, use a lender and Realtor that is experienced with VA Mortgages, like myself. In a market that isn’t close to a military base, many lenders and Realtors can almost be intimidated by a VA Mortgage, so ensure you find someone that is experienced using those products!
If you have any questions or would like to discuss using your VA Mortgage benefit, please don’t hesitate to reach out to me! Until next time.
~ Tim Nelson | RE/MAX Affiliates | 715-529-0239