These days, more homebuyers than ever before are turning to the internet when researching loan options. VA home loans stand out as one of the strongest loan products on the market for those with VA loan eligibility. Unfortunately, the web is also full of myths and inaccuracies that dissuade Veterans from using their VA loan benefits.
Let’s tackle the five most common VA home loan myths while also showcasing the advantages and flexibility of this unique financing tool.
Myth 1: VA Loans require a down payment.
Reality: VA loans require no down payment, but borrowers can choose to submit a down payment if they want. While no down payment is perhaps the cornerstone benefit of VA loans, a new Veterans United study found that only 3 in 10 Veterans know VA loans don’t require a down payment.
Placing a down payment can lower a borrower’s interest rate, monthly payments and create equity. If you are considering a VA loan and have cash reserves, you should consider spending a bit more to enjoy those benefits. With that being said, no VA loan borrowers are required to make a down payment.
Myth 2: The VA acts as a loan lender.
Reality: The Department of Veterans Affairs doesn’t actually loan out money. Instead, the VA provides lenders with a guaranty that promises to pay a certain dollar amount back if the borrower were to default on their loan. The VA also sets service eligibility criteria for Veterans, service members and surviving spouses, while lenders set financial criteria.
The VA guaranty is what allows the VA loan to have no required down payment. Lenders who finance VA loans understand they can expect a certain amount of money if the borrower defaults. The amount of money that the VA will repay on the borrower’s behalf is known as their VA loan entitlement, the exact value of which varies depending on several factors.
The VA loan guaranty and VA loan entitlement protects lenders and gives them more peace of mind. Along with these safeguards, borrowers have access to a wide range of other VA loan benefits, including no down payment, no PMI and closing cost limits.
Myth 3: VA appraisals and Minimum Property Requirements hinder home purchases.
Reality: The VA appraisal is designed to be a safeguard, not a hindrance to VA loan borrowers. But, if you’re pursuing a home in poor condition, the VA appraisal can certainly slow you down.
Before a home purchase can be approved, VA appraisers follow the VA’s Minimum Property Requirements (MPRs) to determine if the home is safe, structurally sound and sanitary. Despite rumors on the internet, MPRs are not concerned with minor, nit-picky issues. Instead, MPRs include the following:
- Plumbing and electrical systems must be safe and in good condition
- Heating and cooling must be adequate
- Roofing must be stable and secure
- Loose paint must be scraped and repainted
- No leaks, excessive dampness, defective construction or decay
- No termites, destructive insects, fungus growth or dry rot
It’s clear from reviewing MPRs that VA loans are not designed to fund fixer-uppers. The VA wants to ensure the purchase of solid, move-in-ready homes, not suffering properties that could put VA loan borrowers and their families at risk. Choose a home in good condition, and the VA appraisal will be a breeze.
Myth 2: "The VA Appraisal is a Nightmare"
Fact: If buyers pursue a home in poor condition, the VA appraisal is certainly nightmarish. Otherwise, the VA appraisal isn’t terribly different from the average conventional appraisal.
Appraisers use the VA’s “Minimum Property Requirement” (MPR) guidelines to determine if a home is safe, structurally sound, and sanitary. MPRs include the following:
- Plumbing and electrical systems must be safe and in good condition
- Heating must be adequate
- Roofing must be adequate
- Loose paint must be scraped and repainted
- No leaks, excessive dampness, defective construction or decay
- No termites, destructive insects, fungus growth or dry rot
It’s clear from reviewing MPRs that VA loans are not designed to fund fixer-uppers. The VA wants service members to purchase solid, move-in ready homes, not dilapidated duds. Choose a home in good condition, and the VA appraisal will be a breeze.
Myth 3: "Veterans are 'guaranteed' a VA Loan"
Fact: No one is guaranteed a loan. Even service members with VA loan entitlement.
The word “guaranty” often pops up in VA loan discussions. Consequently, many buyers think military service entitles veterans to a “no strings attached” VA loan.
Not so. The VA loan guaranty refers to the amount of each VA loan that is backed by the government (usually 25 percent of the loan). In case of default, the amount under guaranty will be paid back to the lender by the government.
Just remember that “guaranty” is much different than “guarantee.” Each VA loan is under “guaranty,” but no one is guaranteed a VA loan.
» CALCULATE: Calculate your VA Loan savings
Myth 4: VA loans take longer to close.
Reality: On average, it takes 40-50 days to close a VA loan, which is comparable to conventional and other standard loan types.
It’s true that the VA loan process may include more steps than a conventional loan, such as the VA appraisal and required repairs. When combined with other processes that all loan types undergo, such as underwriting and negotiations, it can seem like VA loans take longer.
You can avoid the majority of potential stumbling blocks with proper planning. By getting preapproved, finding an experienced real estate agent and VA loan lender and choosing a home in good condition, you should be well on your way to closing.
Myth 5: Real estate agents and sellers prefer conventional over VA loans.
Reality: There’s no way to predict which loan types real estate agents and sellers will prefer. Depending on housing market conditions and the state of the economy, different loan types may seem more favorable than others. Nevertheless, you shouldn’t forgo using your hard-earned VA loan benefits out of fear of the unknown.
On the internet, there are several anecdotes of VA loan borrowers who assume they lost out on a home deal because it didn’t meet MPRs, the appraisal of the home’s value came in lower than the asking price or the seller didn’t want to pay non-allowable fees. While these situations do occur, ultimately, the VA loan borrower is protected from a poor deal and often a problematic home.
Conversely, there are many stories of VA loan borrowers who received more preferential treatment because they found a home for sale by a Veteran. Veterans look out for each other, often preferring to sell their home to another military member, even if they have a higher offer from another interested party.
The VA loan terms of a home for sale can also be assumed by another eligible VA loan borrower. Even in challenging conditions, VA loan homebuyers can purchase a property with more favorable interest rates and monthly payments.
Ultimately, it’s important to work with a real estate agent who’s familiar with how VA loans work. Veterans United Realty (VUR) can match you with a licensed local agent who specializes in assisting Veterans and military families in locating and acquiring their ideal homes. A trusted VUR agent can inform the listing agent and seller about the VA loan homebuying process and dispel any myths or misconceptions they may have.
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