va-loan-basicsAmericans who have actively served their country in all branches of the military and having left the service with anything other than a dishonorable discharge have access to a wide range of benefits from the Department of Veterans Affairs.  Under the Veterans Administration (VA) this includes assistance in purchasing a home.

Great Terms On Home Loans For Veterans

The VA does not lend money for home purchase but instead provides a loan guaranty to qualifying veterans to buy homes on very affordable terms. The VA loan guaranty program was instituted as the end of WWII approached, and the agency was very aware of the coming waves of men and women returning to civilian life.  The concept was to enable returning veterans to settle and have a home and a part in the American Dream, in recognition of the fact that they had risked sacrificing their lives on behalf of the nation.

What has evolved over the years is an excellent program that allows qualifying vets to buy homes without down payments. This program is a generous benefit but in practice, it suffers from a touch of bureaucracy and being poorly understood by some real estate professionals.

VA Loans Sometimes Cause Confusion

Lenders and realtors sometimes shy away from VA because they do not have enough information or experience with it in practice. In unsubsidized conventional lending, the borrower contributes a down payment of twenty percent or more. The VA entitlement subsidizes insurance on the portion the financing that would be covered by the down payment; this can be confusing to inexperienced lenders and agents.

The VA Loan Guaranty program sets no limit on lending, but it caps the deposit liability. VA Loans do not have a conforming loan limit per se, but for a no-down-payment VA loan the de facto lending limit is the same as Fannie Mae and Freddie Mac limits by county, but by adding cash as down payment you can increase the size of the loan. In all cases, you still have to qualify based on your credit and income just like conventional and FHA loans.

Appraisals for VA have a reputation for being rigorous, slow and conservative (meaning it might come in low).  A low appraisal might prevent the sale unless the buyer pays the difference, which undermines the whole point of “no down payment.”

VA financing requires that an eligible property is within U.S. territories and is a completed structure, either new built or existing, not undeveloped land.  If the home is a condominium, the complex also has to be approved for VA lending, which is not a given.

Something For Your Service

The potential roadblocks you might encounter are professionals reluctant to work with a VA loan, harsh appraisals and the need for condo approval. But these are not insurmountable challenges; a little persistence will go a long way when you are attempting to buy a home with a VA loan and no down payment. Approach the process as if you are hunting for a bargain and when you have your new home, you will find it is a bargain that you earned with your service.