VA Loans
Why might I want a VA-backed purchase loan?
A VA-backed purchase loan often offers:
- No down payment if the sales price isn’t higher than the home’s appraised value (the value set for the home after an expert reviews the property)
- Better terms and interest rates than other loans from private banks, mortgage companies, or credit unions (also called lenders)
- The ability to borrow up to the Fannie Mae/Freddie Mac conforming loan limit on a no-down-payment loan in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.
- No need for private mortgage insurance (PMI) or mortgage insurance premiums (MIP)
- PMI is a type of insurance that protects the lender if you end up not being able to pay your mortgage. It’s usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.
- MIP is what the Federal Housing Administration (FHA) requires you to pay to self-insure an FHA loan against future loss.
- Fewer closing costs, which may be paid by the seller
- No penalty fee if you pay the loan off early
If you qualify for a VA-backed purchase loan, you can use the loan to:
- Buy a single-family home, up to 4 units
- Buy a condo in a VA-approved project
- Buy a home and improve it
- Buy a manufactured home or lot
- Build a new home
- Make changes or add new features (like solar power) to make your home more energy efficient
You can also:
- Get a VA-backed home loan to buy your first home
- Use your VA loan benefit again if you sell or refinance a home you bought with a VA-backed home loan
- Assume a VA-backed home loan (which means that instead of opening a new mortgage loan, the buyer takes over the seller’s loan)
How can I buy a home with a VA-backed purchase loan?
Buying a home is a complex process and getting a VA-backed purchase loan is only one piece of the puzzle.
Steps to buying your home
Once you’ve found the house you want to buy:
1. Work with your agent to put together and sign a purchase agreement
Be sure the sales contract includes the “VA escape clause” or “VA option clause.” This provides an option to void the contract if the property doesn’t appraise for the contract price.
Ask your real estate agent for advice on other options for voiding the contract you may want to include, such as if the property fails a home inspection. These options are called contingencies.
To learn more, watch this helpful video:
Using your VA home loan benefit: working with a Realtor and lender
2. Have the house inspected and appraised
We strongly recommend that you get an inspection to check for any major defects before you purchase your home. A VA-approved appraiser will also appraise the house to make sure it meets basic property condition requirements (called minimum property requirements, or MPRs), and will provide an opinion of value on the house. Please note that an appraisal isn’t the same as an inspection.
If the property doesn’t appraise at a value that’s high enough to get the loan, you have a few options. You can:
- Request a Reconsideration of Value (ROV).You can ask your real estate agent to provide the lender with valid sales data showing the property is worth more than its appraised price. The lender will ask the appraiser to reconsider based on this information.
- Renegotiate the sales price. Ask the seller to lower the price to match the appraised value.
- Pay the difference between the appraised price and the sales price.To do this, you’ll need to pay this cost at closing.
To learn more, watch these helpful videos:
VA home loans: What are MPRs?
What’s the difference between VA’s appraisal process and a home inspection?
3. Review pre-closing paperwork and give your lender any other needed information
Your lender must give you a Closing Disclosure at least 3 business days before closing. Be sure to read it carefully. It includes loan terms, fees, closing costs, and your estimated monthly mortgage payments. Your lender may also ask you to provide more information or documents at this time.
4. Close on your new home
Your closing may be held at a title company, escrow office, or attorney’s office. Be prepared to sign a lot of documents—and be sure to take the time to read everything before you sign. After closing, you’re ready to move into your new home. Congratulations!
Click Apply now to be connected with a Licensed Loan Officer today.
