The VA loan program was introduced to help the US veterans fulfill their dreams of buying a home. As the program offers several benefits over conventional and other government backed home loan programs, it is one of the most popular home loans among borrowers. While the VA loan offers several advantages, there are various disadvantages associated with VA loans, too. It is, therefore, important for you to weigh the pros and cons of VA loans before you go apply for a VA home loan to buy a home in Texas or anywhere in the US. Come, let’s take a look at what they are. Pros of VA loans 1. Zero Down Payment Most home buyers procrastinate their home buying decision because of lack of funds required to pay the down payment. One of the key benefits of obtaining a VA home loan is that the borrower doesn’t have to pay a down payment. 2. Closing Cost Benefits Most home loan programs require homebuyers to pay the closing costs that comes as an additional burden for home buyers VA loan program allows sellers to pay a part of the closing cost on behalf of the veteran home buyers. 3. Low Interest Rates Interest rate is one of the most important factors that help home buyers determine the home loan they must obtain. VA loans offer lower interest rates as compared to what most home loan programs offer. Cons of VA loans 1. Funding Fee VA loan borrowers are required to pay an upfront funding fee of 2.15 percent if they are obtaining a VA loan for the first time, and 3.3 percent if they have taken a VA loan earlier. 2. VA Non-allowable Costs The VA loan program does not allow a buyer to pay the non-allowable costs. These costs have to be borne by the seller. Though these costs are only 1 percent of closing costs, it can be hard to convince a seller to pay these costs during a sellers’ market. 3. Terms of Usage VA loan program does not provide loans for buying a second home or for making an investment. The borrower or their dependents are expected to occupy the property within 6 months from the date of purchase. Last Few Words VA loan is undoubtedly one of the best home loan options available to veteran borrowers. However, if there are any home loan restrictions around VA loans that are discouraging you from obtaining a VA home loan, it’s advisable to consult a home loan officer who can help you decide whether you should go with a VA loan or any other home loan option.
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VA loans in Texas and other parts of the U.S. are provided to eligible veterans or their spouses. These loans are guaranteed by the VA and are one of the most popular loan programs due to the benefits such as no down payment requirements, and lower interest rates that come with them. That said, as is the case with other loans, there are some drawbacks of VA loans, too. Opting for VA loan is necessarily not a better alternative every time. To provide a balanced perspective when deciding whether to opt for a VA loan, the post lists some pros and cons of the loan. Read on.
Benefits No Down payment Requirement Unlike some other government and conventional loans, VA loans do not require any down payment. That said, lenders usually offer better terms to borrowers who pay a downpayment (of 20 percent or more). No Private Mortgage Insurance Required An added cost for FHA borrowers who cannot pay at least 20 percent down payment is the yearly private mortgage insurance premium. This cost is spread throughout the life of the loan and can run into thousands of dollars. VA does not have any PMI requirements which helps save precious dollars, thereby, reducing the total cost of the loan. Relaxed Debt-to-income Ratio Requirements DTI ratio is the ratio between the debt you owe and your income for a given period. VA has relaxed DTI norms a compared to FHA and conventional loans. It is not rare for the body to approve borrowers with a high DTI ratio (41 percent or more), thereby, making these loans more accessible. No Prepayment Penalties Unlike some other loans that require a prepayment penalty in case the borrower wants to pay their loan at an earlier period, VA does not have a prepayment charge for borrowers who want to pay off a part or all of their loan before the stipulated period expires. Limits on the Closing Costs Paid by the Buyer Closing costs, on an average range between 2-5 percent of the home’s purchase price. The VA does not allow the veteran to pay certain closing costs such as attorney fee, escrow fee, document preparation fee, and underwriting fee, which helps in reducing the loan cost for the borrower. Drawbacks Funding fee VA loans carry a funding fee that helps the VA to run the program and keep on providing the benefits. This fee varies in the range of 1.25 percent to 3.3 percent depending on the down payment amount. Veterans with a service connected disability are exempt from this fee. Other borrowers can get this charge rolled into their loan. Property Restrictions One of the eligibility requirements for a VA loan is that the borrower must intend to use the property as their primary residence. These loans are not provided to finance a second home or an investment property. Stringent Appraisal Process VA has a stringent appraisal process and can reject a loan application if the seller does not agrees to certain repairs, thereby, making it difficult for the buyer to buy the house “as is”. Hesitant Buyers VA restricts the amount of closing costs the borrower can pay, which can result in additional expenses for the seller. Many sellers are, therefore, hesitant to sell their house to a VA loan borrower. Conclusion There is no set answer to the question whether a VA loan is good for you. To reach at an informed and judicious decision you need to consider these factors. You must also consult your lender or an experienced mortgage consultant who will study your personal info to help you choose a program that best suits your needs. All mortgages come with closing costs, and VA loan is no exception. Unlike conventional loans, VA loan has a limited closing cost, which could be anything between 3 to 5 percent of the loan amount. Though some of the closing costs may be paid by the seller, a veteran buyer must still be aware of the major closing costs that are involved in the home loan process. In this blog post, we discuss four main home loan closing costs a veteran needs to pay before they get the key to their dream home.
Appraisal Fee The appraisal fee is a non-refundable closing cost that buyer needs to pay upfront. The amount to be paid varies by the type of home (single-family, condo, manufactured home) and the state where it is purchased. The appraisal fee in Texas, for instance, is $459, which is $10 more than what you pay for in Oklahoma. The average appraisal fee for a single family home could be between $400-$450 and is paid once the VA-certified appraiser evaluates the home and submits the appraisal. Credit Report Fee The credit report fee could be between $50-$65, and most of the lenders demand for the payment as soon as the buyer applies for the loan. Lenders refer to the report to check the middle score of the borrower before qualifying the loan. The report usually includes credit scores from Experian, Transunion and Equifax. Similar to appraisal fee, credit report fee is non-refundable, even if the veteran never closes the loan. Title Insurance A title insurance protects the homeowner and lender from a situation where someone else could claim the right to the house and win the legal battle after closing. The insurance is issued by a title company after verifying that there are no unsettled liens against the property. The average fee of title insurance could be between $600 to $800, and might vary depending on the loan amount and regional insurance rates. Origination Fee Origination fee is usually 1 percent of the loan amount and is charged by the lender to cover the administrative expenses incurred during the processing of the loan. The lender has the to option to charge this as a flat fee or itemize the expense while ensuring that it doesn’t exceed 1 percent. The itemization would include:
Final Words Survey fee, recording fee and flood certification, are a few more fees the veteran might need to pay at the time of closing. Depending on the terms of purchase contract, the seller has the right to pitch in to pay for all or a part of the closing costs in behalf of the buyer. The amount of closing fees varies depending on the lender and the price of the property, and the lender provides a Good Faith Estimate to explain the cost of the loan in detail. Getting home loan approval could be a long and exhausting process. Many factors including your income stability, existing loans and monthly outflows, and even your educational qualification affect your eligibility of getting a home loan. Besides these, credit score is one of the determining factors when it comes to your loan approval. Although banks and lenders may not factor in your credit score in case of a VA loan and other special types of loan, if they do, it might delay the loan approval process and make it more difficult. If you have a bad credit score, this post will give you four ways to get a home loan with a bad credit score. Read on. 1. Negotiate the Rate Individuals with a bad credit score tend get loan approval at a high interest rate. Your need for a loan determines whether you will accept the interest rate or not. You can either convince the lender to grant you a loan at a higher interest rate or for a shorter tenure or leverage a healthy credit history to negotiate the interest rate and the tenure. 2. Add a Guarantor One way to get approval for a home loan is by introducing a personal guarantor. If you have a guarantor who has a healthy credit score, a lender may be inclined to approve your home loan, despite your bad credit score. A guarantor can be anyone from your friends or family to a financing firm. 3. Leverage a Clean Track of Repayment A clean track record of repayment of other existing loans can help a great deal in getting the home loan. Many banks offer pre-approved loans if you have a clean track loan repayment history. In the same way, if you have been repaying your other loans or dues on time and can display a clean track record, you can use this as a leverage to request for a higher home loan amount. 4. Offer Interim Security A bank or lender approves your home loan based on the type of property you buy and that property acts as a primary security. If you have a bad credit score, yet want to increase the loan amount, you can offer another asset as an additional interim security. Loan and Mortgage Experts in Texas Getting home loan on a bad credit score can be a difficult task for anyone. The four ways mentioned in this blog post may help you get an approval on your home loan sooner, and with lesser hassles. If you are looking for a home loan in Texas or nearby areas, you will find trusted loan and mortgage experts and firms such as Service First Mortgage - The Davidson Group, who will help you get any type of loans from simple home loans to VA home loans, even with a bad credit score. VA appraisal is an important part of the VA home loan approval process. When you sign up for a VA home loan, a VA-approved lender requires a VA appraiser to assess the property’s value and ensure that the home qualifies the Minimum Property Requirements (MPRs). The Department of Veterans Affairs established MPRs to ensure that the service members buy homes that are structurally safe, sanitary, and fit on various other similar parameters. If you plan to purchase a home through a VA home loan, it is important for your property to qualify the MRPs to ensure your health and safety. Continuing the discussion further, there are some major problems that may cause hindrance in getting you a VA appraisal. Let’s have a look at a few of them. 1. Inefficient Heating System A home to pass the VA appraisal must include a safe, acceptable, and efficient heating system. It should provide sufficient amount of heat to maintain a home’s temperature above 50 degrees Fahrenheit. Homes that have wood-burning stoves as the primary heating source must have another heating system to maintain an adequate temperature inside home. 2. Dilapidated Roof A roof is the first line of defense that protects the residents from harsh weather conditions and therefore must always be in a good shape. During the VA home loan process, the VA appraisers, sent by the VA approved lenders, inspect the condition of the roof. If there are holes, cracks, or any other defect in the roof, your property will not qualify for the VA appraisal. 3. Inadequate Mechanical Systems An inadequate mechanical system is another reason that can create an obstacle in getting approval for VA appraisal. VA appraisers inspect whether the home has electric and plumbing systems in safe and good working condition or not. The mechanical systems must have considerable future life and should not pose major issues for the residents. 4. Pest Problems To get VA approval, a termite and pest inspection is run on the property. Properties with prior fungus growth, termites, and other pest control issues must get them treated and then re-evaluated to get clearance from VA appraisers. In most states of the US, VA home buyers are not allowed to pay for the cost of a termite inspection. 5. Health or Safety Hazards Any type of health or safety hazard found can fail your property for VA appraisal. The appraisers will inspect the property as well the nearby area to look for health hazards such as polluted water, nuclear waste, waste disposal from the nearby factories or areas. The Bottom LineThe Department of Veterans Affairs has established some strict rules and high standards to appraise a veteran’s prospective home. Home loans from VA-approved lenders isn’t going to pass until the property qualifies all the given requirements. Property agents may look at it as a small and arbitrary process, but these precautionary measures ensure the health and safety of the veteran members and their families. VA home loans, like other mortgage programs, include a closing cost. The difference is that you are not obliged to bear all of the VA loan closing costs. You can always request your VA lender to pay for some or all of the closing costs, including the allowable fees such as origination and the appraisal fee. In fact, the VA does not set any limit on the amount of closing costs an applicant can negotiate with their VA lender for settlement. To provide some more information on the topic, here’s a list of the common VA loan-related closing costs you need to know. Origination Fee The origination fee is the fee that a lender charges when you enter into a loan agreement. It’s required to process and underwrite the VA home loan. VA lenders can choose to charge you a flat 1 percent origination fee that’s 1 percent of your total loan amount. Alternately, they can charge a host of other fees until the amount doesn’t exceed the 1 percent of your home loan. Appraisal Fee The VA appraisal fee is another allowable fee for VA home loan buyers in Texas, Florida, or any state. The VA decides the fees that typically comes around $425. You can check the maximum allowable appraisal fee for your state by visiting the website of The Department of Veteran Affairs. Discount Points Discount point(s) is an interest amount that you pay in advance to the lender. It’s a kind of provision to help you lower your loan’s rate of interest. One discount point means 1 percent of your total loan amount. This means, if your total loan amount is $3,00,000, then 1 discount point would be $3,000. The more points you pay to the lender, the lower will be your interest rate. Pest and Septic Inspection Fees The pest and septic inspection fees are applicable in all but nine states. The VA lender or seller pays the fees in most cases. Buyers, however, may have to bear any repair costs related to septic or pest issues. Title Insurance Fee Title insurance is there to protect from any financial loss if there comes a titling issue such as a boundary dispute or a lien, after the closing of the property. Although VA home loan borrowers aren't required to buy the title insurance, most owners go for it, for peace of mind. There are two title insurance - one for the lender, and the other for the owner. In many states including Illinois, the lender typically pays one-time premium for your title insurance. Credit Report Fee In addition to the above loan-related closing costs, some VA lenders may also charge a fee to access your credit information. According to the VA, this fee should not be more than $50. Conclusion Closing costs also includes non-loan fees such as recording, survey fee, home warranty fee, and home owners association or HOA fee. Learning about them on your own may not be easy for everyone. That’s why it is advisable to consult a loan banking officer, who can help you understand the prerequisites to obtain a VA home loan. A loan officer can also help negotiate the closing costs with your VA lender. |
AuthorDarrick encourages readers to post issues that need immediate attention in terms of home buying; such interactions will enhance reader engagement and provide a road-map for others Archives
November 2017
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