Current and former service members are in many ways the ideal loan recipients, mortgage experts say.
“We know the veteran for the most part is someone who’s going to be reliable, disciplined and has the ethos of, ‘I have an obligation and I’m going to take care of it,’” said Tom Lynch, executive chairman of the mortgage company NewDay USA.
That sentiment should boost the confidence of any troops or veterans looking for the best mortgage options for buying their first homes. As should the benefits of VA loans, which offer generous terms to veterans that civilians can’t get.
A recent report from the Consumer Financial Protection Bureau indicated that active-duty troops and veterans buying their first homes are forgoing conventional real-estate loans and other government-funded mortgage options in favor of VA loans.
With that in mind, here are a few tips from experts for troops and veterans looking to buy their first homes.
The fact more people are using VA loans isn’t a fluke.
For one, the VA provides 100 percent loans that eliminate the need for down payments. Most conventional loans require a down payment and usually only cover 80 or 85 percent of the home’s total value.
Unlike loans received through the Federal Housing Administration, VA loans don’t require a monthly mortgage insurance payment.
In addition, veterans who receive monthly disability benefits don’t have to pay the VA’s funding fee, which can run from 0.5 to 3.3 percent of an overall loan.
Lynch said that the usage rates of VA loans will probably continue to increase as more home-buyers discover all the upsides of going with a VA loan.
“It is rising,” he said. “It’s a combo of people understanding the benefit of the VA loan … and it’s also symptomatic of the rising real-estate values around the country.”
Know the VA loan process
Home-buyers must meet a few requirements in order to qualify for a VA loan, as the VA’s website details.
As with other loan types, you must have strong credit and enough income to afford the home.
But for VA loans, you need to apply for a VA Home Loan Certificate of Eligibility. The process has different rules depending on your military status.
After establishing your eligibility, the next step involves making sure you have all your necessary military service documentation handy. The most important form for this process is the DD214, a Department of Defense document issued whenever a service member separates from the military.
The VA’s website also mentions that anyone applying for a VA loan needs “certification that you will occupy the home.”
Once you have all your documentation ready, you can go to lenders like USAA and NewDay USA who work directly with the VA to get the right loan for your situation.
Do your homework
Lynch encouraged new home-buyers to make sure they understand all the fees that will be involved in their VA loans and — arguably more importantly — that their realtor does as well.
“If your realtor doesn’t understand VA loans, get to a realtor who has done VA loans before,” he said.
Ed Robinson, senior vice president and head of real-estate lending at USAA, advised first-time home-buyers to know the basics, like what kind of loan they want, their credit scores and as much about the borrowing process as possible.
“The process can seem extremely daunting to someone, because if you think about the vast majority of lending that’s available, it’s very short-term in nature,” he said. “Understand all the things you’re going to have to have handy.”
Lynch also made it clear that the ultimate goal is to put as little money into a new home as possible.
“Put a minimal amount of money down,” he said. “You try to keep money in the bank so you’re not cash-poor.”
A VA loan is a great option for first-time home-buyers, but it’s certainly not the only one.
“I think they should look at a few options,” Robinson said.
You can also take out a loan through the Federal Housing Finance Agency, which includes secondary mortgage-loan lenders Fannie Mae and Freddie Mac.
There are also conventional real estate loans and other government-funded loans available through agencies like the Federal Housing Administration and United States Department of Agriculture.
It’s also worth remembering that chances are you will be working with lenders who will be your middlemen for obtaining loans through any of these sources.
Believe in yourself
If veterans are unsure how to go about buying their first homes, there is no shame in asking for help, Robinson said.
Get “the counseling that’s on the marketplace so the service member knows how to get the best rate possible,” he said.
And, Robinson added, there are resources out there like VA loans designed to make the home-buying process easier for troops and veterans alike.
“It does make sense, especially for first-time home-buyers, to be able to maximize that opportunity and reduce that upfront out-of-pocket,” he said.