Understanding the truth about VA loans can help homeowners and buyers take advantage of a solid financing option.
Generations of veterans and military members have relied on the VA loan program to achieve the dream of homeownership. Today, this $0 down mortgage option is booming in a time of tight credit. But millions of veterans and military families are still missing out.
Part of the reason is the litany of misconceptions surrounding this 70-year-old benefit. To be sure, some are rooted in grains of truth given the program’s more bureaucratic past. But others are outdated or just flat-out wrong. Either way, the end result is the same: Misconceptions about VA home loans wind up hurting both buyers and sellers. Here’s a look at four big ones.
Myth: VA Loans are Lackluster Loan Options
Reality: This is the most powerful mortgage option on the market for scores of military buyers. Qualified borrowers can purchase up to $417,000 in most parts of the country before having to factor in a down payment. There’s no mortgage insurance on VA loans, and they feature more flexible and forgiving requirements than other loan types. This program exists to help get veterans into homes. Sellers should understand it does exactly that, often better than other mortgage options. About 72 percent of the VA purchase applications filed during the summer months went on to close, according to mortgage software firm Ellie Mae. The closing success rate for conventional financing was 66 percent. The mortgage market can be a risky place. A pre-approved VA buyer is a pretty safe bet.
Myth: VA Loans Take Forever to Close
Reality: This one stems from the sometimes slow-moving VA program of yesteryear. A focus on improving automation and responsiveness has helped VA loans catch up with the field in terms of time to close. The average VA purchase loan closed in 40 days in September, according to Ellie Mae. That’s one day longer than conventional, and two days faster on average than FHA financing.
Myth: The VA Appraisal Process Harms more than it Helps
Reality: Few aspects of VA loans engender more misconception than the appraisal process. Properties need to meet broad requirements to help ensure veterans are getting move-in-ready homes that are safe, structurally sound and sanitary. Fixer-uppers and foreclosures can be tough for VA financing. Sellers sometimes bristle at the idea of making repairs in order to close. Part of the problem is a lingering misconception that VA buyers aren’t allowed to pay for them. They absolutely can, even for repairs involving those minimum property requirements. Policies can vary by lender.
Myth: Sellers Have to Pay a VA Buyer’s Closing Costs
Reality: Sellers can pay all of a buyer’s loan-related closing costs and up to 4 percent of the purchase price in concessions, which can cover things like prepaid taxes and insurance or paying off collections. But they’re not required to pay anything on a buyer’s behalf. Confusion comes in because the VA limits what lenders can charge buyers, and there are a few costs they’re actually not allowed to pay. But that doesn’t mean sellers have to foot the bill. The lender or even a real estate agent can step in and pay any non-allowable fees. Regardless of the loan type, it’s still a real estate transaction — nearly everything is negotiable.
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