The VA home loan program was originally part of the Serviceman’s Readjustment Act of 1944 and provided a host of benefits to returning soldiers after WWII. One of these benefits was the VA home loan program which allowed the veteran to buy and finance a home with no down payment and limited closing costs here in Pensacola, Fla and surrounding Escambia County. For those who are eligible for the VA home loan benefit, it’s very likely there is no better loan option for those looking to purchase a home with as little cash to close as possible. Not only does VA permit 100% financing, but the program does not require monthly mortgage insurance to be paid.
The VA loan is reserved strictly for eligible service personnel. Those eligible include veterans of the armed forces, individuals with at least six years of service in the National Guard or Armed Forces Reserves, active duty personnel with more than 180 days of service and un-remarried surviving spouses of an eligible veteran who has died while in service or as a result of a service-related injury. Eligibility for the VA home loan program is validated by contacting the Department of Veteran’s Affairs and requesting the Certificate of Eligibility. The veteran can make this request individually or the approved VA lender can make the request on behalf of the borrower. When the lender makes the request, the certificate can be received within a matter of moments when the request is made electronically.
The cash to close requirements for VA home loans is relatively low. First, there is no need for a down payment although the veteran is certainly allowed to make some sort of a down payment if they want to lower the amount borrowed yet also the VA restricts the types of closing costs the veteran can pay. Eligible Vets are only allowed to pay for an appraisal, credit report, title insurance, origination fees, recording fees and a property survey. All other closing costs must be paid for by the lender, the seller or by using a lender credit to offset the non-allowable charges.
The VA home loan can be used to finance a single family home including a condominium as well as a 2-4 unit property. When financing a duplex, triplex or fourplex, the borrower must occupy one of the units as the VA home loan can only be used to finance an owner-occupied property and cannot be used to finance a vacation home or an investment property.
The VA home loan program is also considered government-backed. This means should the loan ever go into default and the lender is forced to foreclose, which is extremely rare for a VA home loan, the lender is compensated to 25% of the loss. The loan guarantee to the lender is financed by the Funding Fee. This amount varies based on multiple factors but for a first time home buyer with nothing down and a 30 year fixed rate loan, the funding fee is 2.15% of the sales price. In Pensacola for example and a sales price of $150,000, the 2.15% represents $3,225 but does not have to be paid for out of pocket and is rolled into the loan amount. In addition, there is no monthly mortgage insurance payment needed, keeping monthly mortgage payments lower compared to other low down payment mortgages that do require mortgage insurance or PMI.
For those who qualify for this special mortgage program, if the buyers are seeking a mortgage with the lowest cash to close as possible while still keeping monthly payments low, the VA home loan program is hands down the single best option.