In this day of Hollywood creating one superhero movie after the next, it’s nice to put reality and context to what a hero truly is today. Especially as we moved this month past the 75th anniversary of D-Day, which helped lead to the end of WWII. The veterans that came next were no less heroes and no less worthy of our esteem.
While Veteran’s Day – the day we celebrate our heroes — is November 11th, I’d still like to take the opportunity to remind our current and former service members about the amazing VA home loan that is part of their benefits. After all, there’s no time like the present, right?
It’s curious that of 21.8 million veterans in the U.S., only 6 percent use their VA benefits to purchase a home.
So, we thought we’d take this time to remind active service members, veterans and qualified widows and widowers about this money-saving, homebuying program.
In fact, we feel that the VA loan might just be the best mortgage today.
Not only will you not be required to make a down payment, there’s also no mortgage insurance requirement, making the loan even less expensive. Then, there is the fact that veterans using this loan guarantee often get lower interest rates than they would with a conventional loan.
It does this not by directly lending money but by guaranteeing conventional lenders that a portion of the loan will be repaid should the buyer default. Since lenders are thus assured, they are able to offer our veterans more attractive rates and terms.
The Many Uses Of The VA Home Loan
Although purchasing a home is the most common use of a VA loan, the administration also offers programs for veterans to build homes, to simultaneously purchase and improve a home and to improve a home’s energy efficiency.
To be eligible for a VA-backed loan:
While many of the eligibility requirements for the VA loan are similar to conventional loans, others are less stringent.
- The VA wants you to have “suitable credit.”
- Your income must be enough to cover both your mortgage payment and your monthly bills.
- The VA loan is only for borrowers who intend on occupying the home as their primary residence.
- The borrower must obtain a valid Certificate of Eligibility, or COE for short. Many lenders can use the online ACE system and can provide the certificate almost instantly.
The borrower must also have a certain amount of residual income left after paying monthly credit debt. The amount is determined by region and family size.
For instance, in Minnesota, a family of five must have $1,039 left every month after paying their debt payments. If this family’s debt-to-income ratio (DTI), however, is higher than the maximum allowed, they will need more residual income to qualify.
Now, these are the VA’s eligibility requirements. Since the loan will be granted by a lender, you may face other requirements.
Here’s How Much You Can Borrow
The VA doesn’t set a maximum on the amount of money an eligible veteran can borrow but it does limit how much of the borrowed amount it will guarantee.
“In 2017, a qualified borrower generally can buy a home with a value of up to $424,100 with no down payment, though the actual amount varies by county,” according to Hal M. Bundrick, CFP at nerdwallet.com.
Now, this doesn’t mean you’ll automatically qualify for the maximum. The amount you’ll qualify for depends on a number of factors, including your debt ratio.
Determine your ratio by adding up your monthly debt payments (exclude items such as phone bills, utility bills and groceries) including your mortgage or rent, and dividing the sum by your gross monthly income. The maximum acceptable debt ratio is 41.
There’s a lot more to know and love about the VA-backed loan, so feel free to contact us. I’m happy to point you to a VA loan specialist who will walk you through the process.