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VA Loan First Time Home Buyer [What You Need to Know!] - YouTube
Channel: Mortgage Education & Finance with Stephanie Weeks
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- [Stephanie] VA loans,
they sure are great.
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They're actually some
of my favorite loans.
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They offer 100% financing
and no mortgage insurance,
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but are they always the best option
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for first-time home buyers?
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The answer is no, not always.
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So today's video we're
gonna talk about VA loans
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for first-time home buyers,
who qualifies, how it works,
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and what you should know before making
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that very important decision.
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If you're a first-time home
buyer considering a VA loan,
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stick around to the end of the video
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to find out if this is right for you.
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So what exactly is a VA loan?
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The VA loan program is a benefit
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that the United States
veterans have earned
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through their service.
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It was created to help expand access
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to home ownership for
veterans and service members.
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To help make the loan more attractive
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than other loan options,
the U.S. government
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will guarantee VA loans for
up to 25% of the home's value.
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This does not mean
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that the government's giving you the loan.
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You're still working with a private lender
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to finance the home, and
we're gonna talk more
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about why that matters in just a minute.
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But essentially, the
government is saying that
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if the worst were to happen
and the home is foreclosed on,
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they will cover up to
25% of the home value
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in the foreclosure to
help protect the lender.
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To the lender, you immediately
become a less risky borrower
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because they've got this assistance.
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This is what allows for
one of the biggest benefits
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of the VA loan, financing
up to 100% of the value.
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This makes a VA loan one
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of the few options first-time
home buyers can use
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to purchase a home with no down payment.
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And also another good reason
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why you don't pay mortgage insurance is
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because that's a huge
benefit of the VA loan.
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Who is eligible to take
advantage of a VA loan?
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First off, those serving
active duty in the military.
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You just need to have
served 90 continuous days
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to be eligible.
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For veterans, you must meet the length
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of service requirements,
which is generally 90 days
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during active war or
181 days in peacetime,
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and you need to have been discharged
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with anything other than
dishonorable conditions.
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If you serve in the selected
reserves or the national guard,
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to qualify, it's generally
90 days active duty
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or six credible years.
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Spouses of service members may
qualify to use this benefit
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if they are the surviving spouse
of someone who passed away
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while in service or from a
service-related disability,
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but only if they have not remarried.
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If you are doing a VA
loan, the lender will need
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what's called a
certificate of eligibility.
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This is to prove that you're
eligible for the benefit.
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Often the lender will be
able to get this for you,
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but if you have any questions
about your eligibility,
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you can get this information
by going on VA's website.
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And I'll put a link in the
description for you below.
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Now, real quick, I've spent a lot
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of time putting this video together.
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So would you please hit that like button?
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It really helps to support
the growth of my channel
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and tells YouTube to recommend
this video to others.
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Now, just because you are eligible
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to receive a VA loan does not mean
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that you automatically qualify for one.
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Like I said, you're still
working with a private lender,
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so they're going to have
requirements you must meet
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to show your ability to repay the loan
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before they lend it to you.
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The good news is that
the government backing
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makes lenders more
flexible with requirements
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than on other loan types.
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A good example is your credit score.
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While the VA doesn't set the
minimum credit score required
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for a VA loan, your lender will.
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Most of the time, you
will see advertisements
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that say they want at least a 580,
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but I'm gonna tell you,
it's really difficult
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to find a good VA loan below a 620.
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As with any loan, the better your score,
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the better your rate.
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So always keep that in mind.
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Another thing the lender will look at
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is your debt to income ratio.
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And while there isn't a DTI
limit that's set by the VA,
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a good number to note is 41%.
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If you have a DTI under 41%,
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you're most likely gonna
be good to go in that area.
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If your DTI is above 40%,
you're probably gonna be subject
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to additional financial
scrutiny by the lender.
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Now, I have seen VA loans
approved with a DTI of almost 60%.
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It's possible if the
borrower has good credit
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and other areas of their
file are very, very strong.
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In addition to DTI, the lender will check
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to make sure the borrower meets
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what's called the residual
income requirements,
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which are set by VA.
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This is so important.
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You could literally hit every single box,
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check every box perfectly for this loan
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and you miss that residual
mark, you will not be approved.
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Residual income is the amount
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of discretionary income
the borrower has left over
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each month after paying
majority of their expenses,
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including the mortgage payment.
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So it takes into considerations
things beyond your DTI
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to see how much money you
have for everyday expenses.
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Other loan types do not do this.
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These requirements vary by location,
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loan amount, and family size.
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If you have a high DTI ratio,
lenders document your ability
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to exceed these residual
income requirements
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by 20% as a way to get your loan approved.
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Real quick, if you wanna buy a home
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but you're not sure where to begin
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and you feel anxious just thinking
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about the mortgage process,
I've created a quick
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and easy course to walk you
through it step by step.
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It's called Home Buyer 101,
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and it covers everything you need to know
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from finding the right
lender, to preparing
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for your loan package, to
closing on that new home.
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Don't leave the biggest
purchase of your life to chance.
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Get educated so you can
confidently buy the house you love
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and get a mortgage love just as much.
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If you wanna learn more,
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I'll include the link in
the description below.
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If you're a first-time home
buyer considering a VA loan,
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you may have heard things like
VA loans take a long time,
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there's a lot of red tape,
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you can't buy certain
types of homes with them,
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or sellers don't like VA loans.
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While most of that is not true,
there are some unique things
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to VA loans that you
should know before going
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into the home buying process.
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For example, are you
limited in what you can buy
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with a VA loan?
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Well, kind of.
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VA loans can only be used
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to purchase homes the
buyer intends to live in.
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So you can't use them
for rental properties
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or investment properties.
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As a first-time home buyer,
this generally is not an issue.
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Now, that doesn't mean that
you can't later on decide
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to rent it after you've lived there
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for a year or a few years.
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But what about the type of home?
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Another common misconception
is you can't buy a condo
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with a VA loan, and that's just not true.
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There are plenty of
condos that are available
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to buy with VA loans.
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VA loans do have
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what's called minimum
property requirements,
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or MPRs, not unlike FHA loans.
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The idea is to make sure the
home being purchased is safe,
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sanitary, and structurally sound.
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The goal is they want to protect
the first-time home buyers.
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When buying a home with a VA loan,
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you'll be required to have a VA appraisal.
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This is an appraisal
performed by someone certified
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through the U.S. Department
of Veterans Affairs.
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They'll usually take 10 to
14 business days on average,
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which is a little longer
than a standard appraisal,
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and like any appraiser,
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they're gonna determine the
fair market value of the home.
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Bottom line, they wanna make sure
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that you're not overpaying for the home.
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And this can be important in
a competitive sellers market.
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Your lender cannot loan
more than the home is worth.
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The appraisal also ensures
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that the home meets the VA
minimum property requirements.
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So what does this mean
for you as the buyer?
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Well, if you're looking
to buy a fixer upper
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or a flip to work on
yourself, you're gonna run
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into problems with VA loans most likely.
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It also means that while in
no way a home inspection,
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the appraisal may catch
some repairs that will need
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to be done before the
sale can be finalized.
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Some of these repairs can be
negotiated as part of the price
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with the seller or done
with a private contractor,
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possibly with the cost
financed as part of the loan.
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When buying a home, I always,
and I'm gonna say this again,
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I always recommend working
with a real estate agent.
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And if you're considering a VA loan,
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make sure your agent
has experience with them
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and is familiar with the steps,
processes, and timelines.
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In addition to a good realtor,
you should also make sure
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to work with an experienced lender,
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one that is well versed in VA loans.
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For instance, I, myself,
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am a certified military home specialist,
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meaning I have completed
training as a lender
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to understand the unique
circumstances brought about
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by military service and how
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to help service members
obtain home financing.
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This is very important
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because VA loans have specific
requirements when it comes
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to closing costs, and your
lender should be familiar
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with these and prepared
to explain them to you.
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As we've talked about, the
big benefit of VA loans is
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that you have the option to finance 100%,
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meaning you have no down payment.
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First-time home buyers
will often make the mistake
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and think this means
there will be no cash out
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of pocket when buying a
home, and that is not true.
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Closing costs are different
from down payment.
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There are closing costs
and prepaid items required
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when purchasing a home.
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I have a whole video
breaking down what they are,
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and you can check that out.
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But basically, any part of what
makes up your closing costs
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and prepaid items are the fees associated
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with buying, selling,
and financing a home.
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The VA sets regulations to
try to protect the borrowers
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by limiting what fees can be charged
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and how much they can be.
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Experienced agents and
lenders can help you negotiate
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with the seller and prepare
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for these fees when closing on your home.
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Let's move on to the VA funding fee,
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which is part of the
closing costs on each loan.
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Note, this fee does not go to your lender.
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It goes directly to VA to help fund
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and keep the program going.
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And while this is technically
part of your closing costs,
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you do have the option to
finance this one item in.
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You might hear some
people using funding fee
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as a reason to avoid VA loans.
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It is another fee, right?
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Yes, it is another fee. So how much is it?
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And does it make the VA loan a bad choice?
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First, how much is the VA funding fee?
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As with so many other
things in mortgage lending,
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guess what the answer is.
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It depends, but hang in there with me.
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The first factor is loan size.
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The funding fee is always a
percentage of the loan amount.
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So the loan size will affect
how much you'll end up paying.
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The next factor is your down
payment, like we talked about.
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You have the ability for no down payment,
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but you can also put down
payment if you wish to do so.
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It's gonna cost you more when it comes
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to the funding fee if you
choose the no down payment.
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Fortunately, as a first-time home buyer,
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the fee is only 2.3% of the loan amount.
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If you're able to come
up with a down payment,
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putting down five or 10%,
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you can further decrease the
size of your funding fee.
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There are some exemptions
when funding fee is waived,
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including veterans who have
service-related disability.
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So you might actually
be funding fee exempt.
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If you're wondering if
this applies to you,
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go to your certificate
of eligibility, or COE,
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and it will state if you're
exempt from the funding fee.
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So does funding fee make
the VA loan less attractive
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of an option for first-time home buyers?
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Leave me a comment and let
me know what you think.
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Personally, I don't think so.
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Yes, you're gonna have
to pay a funding fee,
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but if that's what allows
you to buy the home
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and start building equity,
it seems worth it to me.
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And remember, there's one
more thing to consider.
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The other great, great benefit
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of the VA loan is being
no mortgage insurance
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or having no mortgage insurance.
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Well, if you were to
get a conventional loan,
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you would have to pay mortgage insurance
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unless you put down 20%.
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On average, this ranges from 0.5 to 2%
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of the loan amount each year
until you reach 20% equity.
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On other loans, such as FHA mortgages,
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they have funding fees and
mortgage insurance upfront
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as well as monthly, sometimes
for the life of the loan.
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So it's not an insignificant
expense. Let's compare.
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Say you buy a home for
200,000 with 3% down,
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making your loan amount 194,000.
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If you went with a VA loan,
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you would pay a one-time
funding fee of 2.3%,
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which comes to $4,462.
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If you went conventional
that had PMI at 1%,
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you could pay almost
15,000 mortgage insurance
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while you build up 20% equity in the home.
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So if you have the ability to put down 20%
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and qualify for the conventional loan,
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that might be the better option
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because you avoid mortgage insurance
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and there's no funding fee.
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But if you don't, and that's the case
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for most first-time home buyers,
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then VA is a great loan option
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for service members who qualify.
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How about refinancing options
available for VA loans?
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Click on this video here to learn more
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about accessing equity in your home
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with a VA cashout refinance.
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In it, I compare the cashout
option to the VA IRRL,
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or interest rate reduction loan,
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and what costs you should know about.
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I will continue to release these videos
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with mortgage advice each week.
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So be sure to subscribe to my channel
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and turn on the notifications
to catch the next one.
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Click the link to this video,
and I will see you there.
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