There is definitely some confusion around financing. Let’s face it. Most people don’t spend every day of their week researching and learning about loan rules and products. In fact, most people only know the basics, and often, some of the most important information can be lost in the sea of loan jargon. Since there are so many different loan options to fit individual needs, I will just focus on VA financing, that’s available to Veteran and Active duty men and women. As a real estate professional, I work with many lenders and I understand loans, but I am definitely not the loan expert. My focus is the real estate transaction and assisting buyers and sellers. That’s why I reached out to a lending expert, Meena Na, with Element Mortgage to bring me up to date on the latest VA rules, and to debunk some of the myths around VA financing.
Meena’s Expert VA Loan Overview:
“The VA loan is one of the most myth-ridden loan programs out there. The stigma and misconception that a VA loan is any less competitive than a Conventional loan is slowly starting to die down (at least here is Hawaii) but it’s definitely something that still comes up more frequently than it needs to. On the contrary, it can almost be seen as a ‘safer’ bet than some of the other offers you might get as a seller because veterans get a Basic Housing Allowance (BAH) that’s guaranteed each month. Hawaii is considered a high-cost area where the BAH can be, what some would consider, quite generous. Without going too much into the nuances of this loan program, I wanted to highlight some of, what I consider to be, the biggest advantages this loan type has to offer.
No Down Payment Requirement & No Mortgage Insurance
The VA loan does not require a down payment for loan amounts under the county loan limit and there is no mortgage insurance charged either. What? How does that work? The VA charges what’s called a VA Funding Fee which can range anywhere from 2.15% for first-time use to 3.3% for subsequent use. This percentage is calculated based on the loan amount and in 9.999 times out of 10, the veteran elects to finance it (i.e. roll it into their loan amount) as opposed to coming out-of-pocket with it. That’s how the VA makes its money. That said, if you have a 10% disability rating or higher, you will be “exempt” from paying the funding fee altogether.
Jumbo Financing with Little Down
Remember how I snuck in the zero down payment for “loan amounts under the county loan limit” earlier? Bet you were wondering what that even meant. Each county has a loan limit. For example, currently, in the State of Hawaii, the loan limit is $726,525. It usually changes annually with home prices, inflation, housing data, etc. This means that you can get 100% financing up to a loan amount of $726,525. Does that mean you can’t buy a home that’s more than the loan limit? No. However, there will be a minimum down payment requirement beyond this loan amount. The VA requires that the veteran put a minimum down payment of 25% of the difference between the purchase price and the loan limit. Here’s an example. For a $1 million home, the difference would be $273,475 between the purchase price and the county loan limit. The minimum down payment requirement would be $68,369 (rounding up) in this case. The minimum down for a non-VA jumbo loan would be something more like $200,000 (20%) so it’s easy to see the advantages.
Now that I’ve thoroughly confused you, let’s throw in one more tidbit for good luck. As of January 2020, the VA will be removing the country loan limit requirement which means as long as the veteran can meet the other credit requirements, they will not have to put any money down, regardless of the loan amount. The caveat being that the veteran’s Certificate of Eligibility must be free and clear of any encumbrances, judgments or compromises. In layman’s terms, your entitlement has to be 100% available). Stay tuned for these new updates coming your way in the next couple of months.
If you have access to this amazing VA benefit, you should be taking advantage of it. Call, text or email me to help you get pre-approved for a VA loan today.”
For additional VA loan information, please contact Meena Na with Element Mortgage.
With any home search, it is imperative to begin with the financing. A loan should ALWAYS be STEP ONE of the search process. It is fun to look at home listings online and to have a range in mind, but there are so many moving parts in the loan itself, even a small mistake can lead to a huge discrepancy when using online calculators vs getting a real pre-approval from a loan professional. Being informed and prepared will lead to a successful and more enjoyable home search.
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