Contrary to what many Americans think, it's a very good time for servicemembers to refinance or purchase a home. With mortgage rates continuing to hover at all-time lows and many homes selling at significantly discounted prices, it's possible for those with good credit and income to purchase a great home.
One of the unique benefits afforded to military personnel is access to the Veterans Affairs Home Mortgage Loan program. This program offers tremendous mortgage benefits to active-duty servicemembers, veterans, and some surviving spouses. A VA home loan can be used for a number of purposes, including purchasing or building a new home, refinancing a current mortgage, repairing or improving your existing home, or installing home efficiency measures.
While a conventional loan might seem like a great bargain because of an advertised lower rate, keep in mind that you often need a high credit score of 720 or above to qualify for these best rates. VA home loans are backed by the government, meaning banks can assume less risk with the loan and possibly price it lower than a rate you would qualify for from a bank. But even without a lower rate, there are a number of other compelling benefits that make the VA home loan program a better overall alternative.
- The VA program won't deny a loan based solely on a low credit score, and most lenders don't tier interest rates for better scores. The VA program usually looks at only the previous 12 months of credit history, unless bankruptcy, a tax lien or a collections situation factors into your situation.
- The VA home mortgage loan doesn't require a down payment. This can save consumers up to 20 percent of the loan value when compared to a conventional loan.
- Borrowers can often refinance to a lower rate within the VA program without re-qualifying for the program through the VA Streamline Refinance Loan.
- If the borrower has a service-related disability, they may qualify for the lender to waive the funding fee, further reducing closing costs.
Starting the Process
You can begin the application process at any lender that offers a VA home loan. At some point, you'll be required to obtain a Certificate of Eligibility. This document will verify that you're qualified for the program and outline your benefits level. Potential borrowers can go online to apply for the program and obtain their COE.
Once you have determined your eligibility, you can move forward with the home buying process. This generally involves finding a VA-approved lender (if you haven't already), pre-qualifying for a loan, choosing a home, having it appraised, and then closing on the loan and property.
- Be sure to review your credit report before you begin the process to correct any errors. Your lender will use this to make a decision about your eligibility and interest rate, so be sure that you put your best foot forward. You can request a free copy at www.annualcreditreport.com. You should also check your credit score so you know what range you fall into before you speak with a lender.
- With interest rates at all-time lows, it makes sense to consider all your options. Those servicemembers who will be in a home for a short period of time might want to consider an adjustable rate mortgage to keep payments as low as possible. For those who have extra disposable income, plan to stay in their home for a long time, and can afford a slightly higher monthly payment; it makes sense to look at a 15-year fixed term loan. This will help you pay off your loan faster and save money on total interest paid on the loan.
- It also makes sense to get pre-approved on your loan amount so that you know what range of house you can afford. This will save an immeasurable amount of time and stress in your home search. It will also provide you with credibility when dealing with sellers who know you are pre-approved at that dollar amount.
The First Step
The first step, even before filling out a loan application, is to see if you qualify for a VA mortgage and get rate quotes from multiple lenders. From there, you can select a lender who will guide you through the application, buying process, and closing.