For first-time homebuyers, purchasing a property is equal parts exciting and stressful. One appealing path to homeownership for those eligible is a VA home loan. This government-backed mortgage is easier to qualify for and has some unique perks for first-time veteran buyers.
Here is everything first-time homebuyers need to know about VA-backed home loans, from the benefits to the application process.
Benefits of VA home loans for first-time buyers
Even though you don't have to be a first-time homebuyer to qualify for a VA home loan, there are some unique benefits for novice buyers who may not have a strong borrowing history.
Lower VA funding fee
While lender fees are negotiable, the VA funding fee is a set rate that is a part of every VA home loan. For first-time buyers, the funding fee is actually lower than if the benefit is used again. NerdWallet reported that in 2020, fees for a first VA purchase loan are 2.3% with zero down payment, 1.65% with a down payment between 5% and 9.9%. If you make a down payment of 10% or more, this fee drops to 1.4%.
In subsequent use, the funding fee for a VA home loan with zero down payment is 3.6%. There is a clear advantage to being a first-time buyer with a VA loan, and you may also want to consider saving for a down payment to lower this fee even further.
Little to no down payment required
On the topic of down payments, most VA home loans don't actually require one. While most mortgage programs require anywhere between 3% cash down for first-time buyers to 20% for mature purchasers, borrowers of a VA-guaranteed mortgage can put as little as zero money down according to Military Benefits.
This is a great option for first-time buyers who may not have the money saved up for a significant down payment. However, some lenders may require a down payment if the asking price is higher than the appraised value of the home. Buyers should always take this into consideration and be prepared for an upfront cost.
Relaxed qualification criteria
Most first-time homebuyers don't have a strong credit history, which can make qualifying for a traditional loan difficult and costly. VA home loans are easier to qualify for and application criteria are usually much more relaxed since the VA guarantees a portion of each loan.
This gives lenders the security that if the borrower misses a payment or defaults they can receive their investment back from the Department of Veterans Affairs. In most locations, the maximum guarantee is $417,000, but could be as much as $625,500 in high-cost locations.
While lenders can set their own criteria for minimum credit scores and collateral, they are usually much more relaxed than for traditional loans, making VA-backed mortgages that much easier to qualify for.
No Private Mortgage Insurance needed
Military.com explained that for most loans, first-time homebuyers will be required to pay private mortgage insurance (PMI) if they're unable to make a 20% down payment. Lenders will require proof of PMI or even require it upfront in order to sign off on the loan.
Since the VA backs a portion of every loan and no down payment is usually required, borrowers don't need to purchase PMI. This can save first-time buyers hundreds each month and, in many cases, streamlines the entire loan process.
Who is eligible?
The benefits of a VA home loan make it an appealing path to ownership for first-time and seasoned homebuyers alike, but you must be eligible to qualify. The VA has reserved this benefit for those who have served the country, but is not just limited to veterans.
The VA outlines the service requirements for veterans during wartime and peacetime on their official website. Additionally, active duty personnel, spouses or persons killed in the line of duty or of certain active duty personnel and certain National Guard Members and Reservists can be eligible for a VA-backed loan.
The Department of Veterans Affairs is transparent with the eligibility requirements for receiving VA benefits on their website, so it can be beneficial to understand if you qualify before applying. The VA offers tools and resources through their online portal for veterans looking for more information about their benefits.
What you need to apply
If you're ready to take advantage of this benefit, there are a few things you'll need to get in order. The VA does not give out loans directly, so you will have to find a private lender that will require important information regarding your finances and veterans status.
The first thing you will need to apply for a VA home loan is a valid Certificate of Eligibility (CEO). This can be received from the VA either online or at an office. A lender will request to see your CEO to determine if you're eligible to receive a VA home loan from them.
Even though VA loans are easier to qualify for, the VA recommends all eligible borrowers have satisfactory credit and sufficient income. Lenders may lower some of their fees if you have a stronger credit history than required, but don't hesitate to shop around to find a lender that might have requirements favorable to your current financial position.
Lenders will also require that the home in question is for your own personal occupancy. VA-backed loans cannot be used for vacation or second properties so you will need to prove that this will be your primary residence. Once these criteria are filled, you're ready to find a lender and start the purchasing process.
VA home loans with Veterans Choice
You don't have to be a first-time homebuyer to receive the benefits of a VA-backed home loan. Dustin DiMisa created Veterans Choice to assist those who served our country achieve their dream of becoming homeowners. Our helpful experienced lenders are ready to help first-time buyers navigate the VA home loan process from start to finish.
You can get help with a VA loan from Veterans Choice today by filling providing some general information on yourself, your credit and your mortgage. Reach out to us today to get started on the path to homeownership.