Why 2021 is a good year to buy for veterans
May 6, 2021
May is “National Military Appreciation Month.” As a veteran-founded company, Semper Home Loans has been helping veterans access VA home loans for over 15 years. We are committed to getting veterans the best home loan available.
The VA home loan program was signed into law by President Franklin D. Roosevelt in 1944 to assist veterans returning home after serving in World War ll. The program continues to aid veterans and active military members today.
2020 was a historic year for VA loan programs, according to the U.S. Department of veterans Affairs. More VA-backed loans were processed in 2020 than the two previous years combined. Approximately a third of veterans recently surveyed plan to buy a home this year, and two-thirds anticipate 2021 will be a good year to buy.
However, the survey also recognized a divide between what veterans, and service members say they know about the mortgage process and what the actual process is.
On average, veterans think they will need a 25% down payment, and just 3% say it is possible to purchase a home with no down payment. Also, many veterans believe they need a credit score of 670 or higher.
Who Is Eligible
To apply for a VA loan a Certificate of Eligibility (COE) can be obtained to show qualification based on length of service* and duty status. To be eligible one, or more, of the following qualifications must be met:
- Served 90 continuous days and are currently on active duty
- Served 90 consecutive days of active service during wartime
- Served 181 days of active service during peacetime
- The spouse of a veteran who has died while in service or from a service-connected disability and meet the remarriage qualifications
Additionally, a new benefits expansion update states that qualifying U.S. Army, and Air, National Guard members are now eligible for the VA home loan benefits. The qualifications are:
- Performed not less than 90 cumulative days of full-time National Guard duty, of which at least 30 days must be consecutive
- Full-time National Guard duty includes training or other duty
- Full-time National Guard duty does not include inactive duty, monthly drills, basic or initial training
If an “other than honorable,” “bad conduct,” or “dishonorable” discharge was received a veteran may not be eligible for VA benefits. However, the VA can be contacted to see if a discharge upgrade is possible.
*Length of service requirements have numerous exceptions. Due to the complexity of scenarios, they are not all covered here. The VA will make a formal determination of eligibility when an application is submitted.
The VA loan program can be used to purchase, refinance, build or improve a home. With a VA-backed loan, the VA guarantees a percentage of the loan from a private lender. This creates less risk for the lender and allows them to issue loans under more favorable terms.
Purchase loan: VA purchase loans have 100% financing and do not require a down payment. Purchase loans have flexible fixed-rate mortgage terms; adjustable-rate mortgage (ARM) programs are also available.
Cash-out refinance loan: A VA Cash-Out Refinance can be done to lower mortgage rates, change the loan terms, refinance up to 100% of the home’s value, and access cash from the accrued equity. veterans can also refinance a non-VA loan into a VA-backed loan with this option.
Interest rate reduction refinance loan (IRRRL): The VA IRRRL allows veterans to refinance an existing loan to reduce interest rates and lower payments. Or an adjustable-rate mortgage can be switched to a fixed-rate mortgage using an IRRRL. This process requires no appraisal or credit underwriting by the VA; however, lenders may require either a credit or appraisal report.
Native American Direct Loan (NADL): Native American veterans (or non-Native American veterans married to a Native American) who meet eligibility requirements can finance the construction, purchase, or improvement of a home on Federal trust land. The NADL is a direct loan and is handled by the VA.
What Are the Benefits
VA loans have considerable benefits and are designed to allow servicemembers and veterans to get a competitive loan with fewer stipulations.
Limited closing costs: Closing costs are fees and expenses required to finalize a mortgage. The VA prohibits lenders from charging veterans for some closing costs and limits the lender’s origination fee to no more than 1% of the loan amount.
Lower credit score requirements: The VA does not have a credit minimum for VA loans. It is set by individual lenders and can be significantly lower than other loan credit requirements.
Competitive rates: VA loan rates are typically lower than FHA and conventional loans. Average 30-year mortgage rates were lower for VA home loans in every month of 2020, according to the Origination Insight Report from Ellie Mae.
No down payment: There is no requirement for a down payment on a VA loan if the sales price isn’t higher than the home’s appraised value.
High loan limits: As of January 2020, veterans with their full entitlement can borrow any amount approved by a lender without having to make a down payment. Prior to this, if a home was outside of the loan limits set by the VA a down payment would be required.
No mortgage insurance: Most conventional loans require private mortgage insurance (PMI) if the down payment is less than twenty percent and FHA loans require mortgage insurance premiums (MIP). VA loans have no mortgage insurance requirements which can save a considerable amount of money.
It’s important to consider all aspects of a loan when making a decision so the total cost can be calculated. While the benefits for VA loans are numerous there are additional things to consider.
VA Funding Fee: A VA funding fee is a one-time payment that a veteran, service member, or surviving spouse pays on a VA loan. The fee goes directly to the Department of veterans Affairs to keep the program running. The below chart shows the current VA funding fee rates for purchase loans.
|2021 VA Funding Fee Chart|
|Down Payment||Funding Fee|
|5% or more||1.65%|
|10% or more||1.40%|
|After First Use||None||3.60%|
|5% or more||1.65%|
|10% or more||1.40%|
Additional funding fee information can be found here.
Primary Housing Only: VA loans can only be used for a primary residence and can’t be used to purchase a vacation home or an investment property.
How to Apply
You can contact a loan officer anytime to start your application. Semper Home Loans has VA loan specialist available to answer any questions you have.