Myth #1: Borrowing Value Is Capped
Unlike many other loans, the Veterans Affairs home loan program does not cap the loan-to-value ratio, or LTV, of a mortgage. In other words, your loan can be up to 100% of the home’s value. So, if you qualify for the program and you are looking at a $150,000 home, you may be financed for up to $150,000.
Other programs limit the LTV, generally to around 80% to 90% of the purchase price. This means you’d be required to put money down, like with an FHA loan that requires a minimum of 3.5% down (a LTV of 96.5%). With a 100% LTV, you don’t have to put any money down, which can make buying a home much more attainable.
Myth #2: Eligibility Expires
Fortunately for you, eligibility for the Veterans Affairs program never expires, even after events like foreclosures, short sales or deed-in-lieu. This is great news and it can help you bounce back after you’ve faced some tough financial challenges. You might also not realize that your spouse and other family members may also be eligible for the program if you were to pass.
Eligibility can be confusing, however, so it’s worth reaching out to an experienced lender or mortgage broker who can help match you with the right VA loan after discussing how you qualify for the program.
Myth #3: The Home Must Be Under $500k
A VA loan is unlike other loan programs where “jumbo loans” are not available, which is any loan that exceeds the conforming loan limit set by Fannie May and Freddie Mac. In reality, jumbo loans are available for larger home purchases on a VA loan. However, a down payment will be required if you go this route.
Myth #4: You Must Pay Closing Costs
While some mortgage programs require that the buyer pays all closing costs, with a VA home loan, there is no restriction on amount of closing costs a seller or other interested party can pay for the veteran borrower. This means you can include “seller pays closing” or “seller pays ½ closing” when you make an offer on a home. While the seller obviously can choose not to pay your closing costs, many are willing to just to close the deal and this can save you thousands of dollars.
You can also ask someone else to pay your closing costs, like maybe a relative or friend who is willing to pitch in and help you out. They can pay a portion of your closing costs or all of it. The VA home loan program will not restrict this assistance in any way.
Myth #5: You Can Only Get One Home
The VA home program is very unique in that veterans may be eligible to have multiple VA loans simultaneously. You may even be allowed to rent out your current home, covering its mortgage payment or bringing in a little extra income for you, while you also own another home that you live in. This can be especially beneficial for veterans who go between multiple locations often or for veterans who want to keep their current home while they relocate to somewhere new.
Myth #6: You Need Mortgage Insurance
While FHA and other mortgage programs require that you carry mortgage insurance if you put less than a certain percent down on the price of your home, there are actually no requirements for monthly mortgage insurance premiums when you get a VA loan. This can save you a little bit of money in the long run and it’s another hoop that you don’t have to jump through when you go with the VA loan program.
Myth #7: You Have To Pay Funding Fees
Funding fees are additional costs that, with most mortgage programs, you’ll have to pay at closing. However, with a VA home loan, it’s possible to finance the VA funding fee, which means you won’t have to pay these costs out of pocket. Instead, it will be rolled into the cost of your loan so that you can spread it out over time. This is great if you don’t have much money in your pocket right now to put towards your home purchase, but realize you’ll have to pay interest on any amount financed, which will cost you additional money in the long run.
Myth #8: There Are Prepay Penalties
Some mortgages will penalize you for paying off your mortgage early or paying more than you are required to. However, unlike other loans, a VA loan can be paid off at any time without incurring prepayment penalties. This is great in case you come upon a sum of money that you’d like to put towards your mortgage. Paying early can save you thousands of dollars in interest and get the burden of your home loan off your plate sooner.
Myth #9: No BAH Payments
You actually can use your BAH (Basic Allowance for Housing) payments to cover your closing costs as long as you live on Base. This is great news as it can help you cover the expenses of taking on a mortgage while keeping you from spending a lot of your out-of-pocket savings that you can instead use to cover moving expenses and other costs associated with your new home.
If you need more advice on how to qualify for a VA loan, our team of mortgage experts at Horizon FHA Loans is always here to help.