Getting your finances in order and qualifying for a Veteran’s mortgage loan is worth the effort. There is no time like the present!
Granted, there has been plenty of trouble in financial markets over the last few years. Traditional loan originations for that period to now have been sharply down. Ironically, VA guaranteed loan funding actually increased by 168% since 2007, with 14% increase in the last year alone.
VA Mortgage Loans are Popular
One of the big reasons for VA mortgage loan popularity is default and delinquency rates have been the lowest of all loan packages throughout the mortgage crisis. Delinquency rates for 90-day defaults are steady at just 2.2% for VA loans, which is less than half that of all other conventional and FHA loans. Loan specialists were initially perplexed at this seeming contradiction because on paper VA borrowers are statistically a greater default risk. Or are they?
In a recent column for the Washington Post, Kenneth Harney wrote, “Michael Frueh, the VA program’s acting director, says the key to the agency’s quiet success is its almost paternalistic emphasis on servicing its 1.5 million borrowers — moving early and quickly to intervene at the slightest hint of payment problems.”
The VA objective to keep borrowers in their homes contrasts starkly to the failure of other federally backed, but commercially serviced loan assistance programs. The VA is clearly working with an ideal of respect here; they are guiding homeowners with a paternal care. The discipline and hard work that characterizes the veteran’s military roots translates as responsible and conscientious in civilian terms.
Take a second to review a few reasons why VA home mortgage loans are so attractive:
• No down payment is required. However, even a small down payment can significantly reduce the VA fee that is associated with the loan. The loan cannot be funded for more than the appraised value and in most states the limit for funding is $417,000.
• Closing costs paid by the borrower are limited and oftentimes even these can be covered by the seller. Approved closing costs of up to 4% of the total can be covered by the seller at closing. Certain costs, like termite inspection, cannot be paid by the buyer.
• Private Mortgage Insurance (PMI) is not required with a VA guaranteed loan. PMI is the extra insurance that lenders require buyers to pay when they take out a loan that is usually greater than 80% the cost of their home. If you choose a VA loan, it is backed by the Federal government and lenders cannot require you to pay PMI.
• Without having to put any money down you do not have to save 20% of the value on a home that conventional loans require. In addition, without any PMI payments you save on your monthly payment (usually between $100-$200 a month).
VA interest rates are trending lower than traditional fixed rates as VA home loans prove to have a markedly lower rate of default through the mortgage crisis. VA loan appraisals tend to be more conservative, which can limit negotiating space to add in additional costs or fees. However, in the current real estate climate, sellers are more conducive to negotiate small changes in purchase price to allow room for the fees with the loan package.
Debt-to-Income Ratio (DTI)
Guidelines for debt-to-income ratio (DTI) recommend a DTI of 41% maximum. Calculate DTI by adding your total mortgage payment (principal and interest, escrow deposits for taxes, hazard insurance, homeowners’ dues, etc.) and all recurring monthly revolving and installment debt (car loans, personal loans, student loans, credit cards, etc.). Then, divide it by your gross monthly income.
With a little planning and some genuine hard work, you can prepare to take advantage of your veteran home loan entitlement. Qualification is not meant to be automatic. But you have already proven that you can be patient, disciplined, and strategic. Start now and you’ll be in that home before you know it!
VA loans are not only attractive to the veteran lender with no or little down payment, but they are increasingly a more secure investment for lenders.