Military veterans have access to a mortgage loan product known as a VA loan. They’re supposed to help veterans get a home in Philadelphia more easily than they would through other means, but they may not be the best option for a veteran. The requirements to qualify are not nearly as stringent as a conventional mortgage and are sometimes a better option than an FHA loan. Ultimately it’s a matter of getting the best mortgage product that fits your needs, and a VA loan may be the best option. Let’s take a look at the requirements for a VA loan and how they stack up to other loans.
No Down Payment Required
Qualified borrowers can get a VA loan without a down payment and no private mortgage insurance. This is advantageous to someone who has little money set aside but would like to own a home and can weather the first few years of home ownership. A VA loan also allows for the gifting of a down payment as long as the source of the money can be documented and it can be proven that the giftee won’t have to repay the money. The person gifting the money has to be a relation or someone who has a close relationship with the borrower. As long as these criteria can be fulfilled, the borrower can use a gift for a down payment. If there’s an offer of a gift for the down payment, make sure to discuss it with a Philadelphia mortgage company to make sure that it’s acceptable per the VA guidelines.
The VA Funding Fee and Exemptions
The VA Funding Fee is used by the VA to offset the cost of VA mortgages that go into default. It’s a percentage of the total cost of the home, is dependent on the amount of money being used for a down-payment and can add a not-inconsiderable amount to the mortgage. The fee goes directly to the VA and can only be exempted in certain situations. The fee schedule looks like this for regular military:
- 2.15 percent fee for a 0 to 4.9 percent downpayment
- 1.50 percent fee for a 5 to 9.9 percent downpayment
- 1.25 percent fee for a 10 percent or more downpayment
The less money that’s put down on a home, the higher the percentage for the fee. What this means for a borrower with little cash for a down payment is an additional cost to the mortgage over the long run.
It’s possible to get an exemption from the fee if the borrower is:
- Entitled to or actively receiving benefits for a disability received while in service
- Surviving spouse of a veteran who passed away during service or disability that’s related to their service
Perhaps the only upside to the fee is that it doesn’t have to be paid out of pocket and can be rolled into the mortgage. The only problem is that it increases the monthly payment.
Credit Scores and Debt-to-Income Ratios Apply
Most VA loans are issued through private lenders who will use a credit score as a benchmark for loan eligibility. It is possible to get a VA loan with a lower FICO score, but a credit score is necessary all the same. The VA may also make claims that there is no debt-to-income ratio maximum, but there’s also language from VA materials that state the lender has to provide compensating factors in the event the total debt ratio is over 41 percent. The compensating factors include taking a look at how much money is left over for other bills at the end of the month after the mortgage and living expenses are paid.
However, average debt ratios for VA loans tend to be higher than conventional loans. Having a high debt-to-income ratio when buying a home may not be ideal, but it can help someone get into a home and gain stability for their future. Talk with a mortgage broker at a Philadelphia mortgage company to learn what makes the most sense when taking out a VA loan.
After Military Life
After a long career in the Military, it is hard to remember that you’re a name and not just a number. That is why, when you’re dealing with a Mortgage Professional don’t except poor customer service.