Finding the best Lender for VA Loans can quickly become overwhelming when you begin to research your options. Naturally, the best place to start is by understanding what VA Loans are and how they can benefit you. The VA home loan program is available to service members, veterans, eligible spouses, and family members to facilitate retaining, adapting, and obtaining property.
Additionally, as a military benefit, and because the Veteran’s Administration guarantees the loan, eligible veterans, service members, and qualifying surviving spouses are not required to make a down payment. By and large, Veterans United, USAA, and the Navy Federal Credit Union are two of the mega lenders used commonly by veterans.
Despite the volume of loans these institutions process, many Veterans want to weigh their options for finding the best VA Mortgage Lender for their personal and financial needs. Unquestionably, the more research a homebuyer does, the more confidence they will have at the closing of the homebuying process.
VA Direct Loans vs. VA-backed Loans
With a VA Direct Home Loan, the U.S. Department of Veterans Affairs serves as your VA Mortgage Lender. For this reason, all loan products and mortgage options will be explained and offered through them directly. VA Direct Loans offer less stringent loan terms and lower interest rates than most conventional funding options.
In the case of a VA-backed loan, the U.S. Department of Veterans Affairs serves as a guarantor for the portion of the loan you receive from a private lender. With VA-backed Loans, homebuyers can shop for mortgage products and choose what type of mortgage suits their needs most effectively. In this situation, buyers can choose the best VA loan lender with lower lender fees and loan limits that work in their favor.
Nearly 90% of all VA-backed home loans are made without a down payment. – U.S. Department of Veterans Affairs
Loan options offered by the U.S. Department of Veterans Affairs
Purchase Loan
VA-backed purchased loans offer competitive interest rates and can be used to purchase a new property and fund the building of a new home or improve a current property. Veterans can take advantage of the perks of VA financing, such as lower interest rates and lenient prequalification standards. VA Loan rates are among the lowest average interest rates when compared to USDA, FHA, and Conventional Loans.
Cash-out Refinancing and Home equity loans and lines of credit (HELOCs)
Cash-out refinance loans can pay off debt, pay for schooling, make home improvements, and various other options. On the condition that a current mortgage is a traditional loan type such as an FHA Loan, Jumbo Loan, an adjustable-rate mortgage, or any other conventional loan type, there are options to refinance. In this situation, a Veteran homeowner can utilize their VA loan entitlement and refinance a non-VA loan into a VA-backed loan.
Interest Rate Reduction Refinance Loan (IRRRL)
An IRRRL enables a homeowner to refinance their home and replace the current loan with a new loan, but under different terms. IRRRLs allow homeowners to reduce monthly mortgage payments, free up funds to ease personal finances, pay off credit cards, and streamline their financial situation.
Native American Direct Loan (NADL)
The Native American Direct Loan (NADL) program may help Veterans get a loan to buy, build, or improve a home on federal trust land. Service members may also get a loan to refinance an existing NADL and reduce your interest rate if you’re a Veteran and their spouse is Native American.
Energy-Efficient Mortgage (EEM)
An Energy Efficient Mortgage, or EEM, is a loan program available through the VA that specializes in helping Veterans cut down on their monthly payments for energy usage. With the help of EEMs, veterans finance qualified energy efficiency-related home improvements to increase a home’s energy efficiency and save money on utility bills.
Manufactured Home Loan
Unlike many traditional financing institutions, the VA allows funding to purchase manufactured homes. In this case, the distinction between a mobile home and a manufactured home must be clear. Although VA loans will fund the purchase of a new manufactured home, they will not finance single-wide manufactured homes or any homes installed at a previous location.
Once you have found the Best Lender for VA Loans, here is how you qualify for funding and pre-approval.
- Obtain your Certificate of Eligibility (COE)
- Show documentation of either current or former U.S. military or National Guard service. (Or the spouse of a military Veteran or serviceman.)
- Confirm that the desired property will become your primary residence.
- Provide proof of the lender’s income and credit score requirements
- Meet the minimum length of service requirements. (Check with your branch of service because these timelines and factors can vary.)
- Obtain and provide documentation to show proof of U.S. citizenship or permanent resident alien status.
What are the key benefits of using the best VA Loan for property purchases?
- Lower interest rates than conventional mortgages.
- Don’t require a down payment or private mortgage insurance (PMI).
- Service members may borrow up to 100% of the home’s value.
- Some surviving spouses retain eligibility for VA loans.
- No-down-payment options.
- Lower minimum borrower qualifications.
- Veterans who put 5% down get a discount on the funding fee.
- No prepayment penalties.
The VA Appraisal process
Overall, the appraisal process serves two functions. Primarily, the VA wants to know they are investing in a sound property that will house American soldiers and their loved ones safely. For this reason, the minimum property requirements must be assessed, and the property must meet the standard of living set in place by the military.
Secondly, establishing an appraised property value assures the home purchase meets fair market value. Unquestionably, the VA appraisal gives the homeowner peace of mind to know their home is safe, sound, and sanitary. The tried and true process of homeownership utilizing VA purchase appraisal standards ensures veterans pay appropriate home prices.
VA Loan Origination Fees and closing costs explained.
Since your lender will charge interest on the loan, and for total transparency, be sure to ask your lender and your real estate agent if any additional loan costs will be added to your loan amount.
Although there is no guarantee that a seller will agree to these terms, VA borrowers often ask a seller to pay all closing costs and up to 4% in concessions. The added benefit of capitalizing on this request is access to funds to cover prepaid taxes, insurance costs, judgments, and other extraneous expenses that will make the homebuyer’s new mortgage payment easier to afford.
VA Loan Funding Fees explained.
Although VA borrowers are not required to pay a down payment, a funding fee is associated with VA-backed loans. If first-time homebuyers put under 5% down, the funding fee will be 2.3% of the total loan amount. In contrast to military members who have previously used the VA home loan program, the funding fee is 3.6% with less than a 5% down payment.
As a rule, the larger the downpayment upfront, the lower the VA funding fee. Typically, the funding fee is collected at the end of the loan process upon closing; however, in some cases, the funding fee can be included in your loan and paid off over time. It should be noted that the Department of Veterans Affairs offers some exemptions from the VA funding fee.
Here are the rules of funding fee exemption eligibility.
- Veterans receiving VA compensation for a service-connected disability.
- Veterans receiving retirement or active-duty service members receiving pay for a service-connected disability.
- The surviving spouse of a Veteran receiving Dependency and Indemnity Compensation (DIC)
- Service members who have received a proposed or pre-discharge claim memorandum rating before the loan closing date.
- Active duty and service members providing evidence of having received the Purple Heart on or before the loan closing date.
If you meet the eligibility requirements to waive the funding fee, call your VA regional loan center at 877-827-3702 (TTY: 711) to check your status.
VA loan Closing Costs
With all of the tantalizing benefits that VA Loans offer, like low fixed-rate interest and mortgage rates below any conventional funding options, it is easy to see why veterans prefer VA Loans. That being said, there are closing costs associated with VA mortgages, and the key is not to be caught off guard. Veterans can expect to pay between 2% and 6% of the loan amount at closing.
In some cases, the VA prohibits and limits some of these fees for borrowers. Lenders cannot make you pay for attorney fees (excluding title attorneys), loan origination charges, and seller-paid fees (which include brokerage fees, real estate agent fees, and termite reports.)
All things considered, VA-backed funding is among the cheapest money a potential home buyer will find, and it is highly advised to take advantage of the financial opportunity presented and pursue the dream of homeownership.
Determine if Lender Credits are a good option for closing costs.
Simply put, not everyone can afford a down payment and closing cost expenses; that is where lender credits can help. These credits allow the lender to pay closing costs for the buyer. Sometimes, lender credits are beneficial. In a nutshell, these credits offer a higher interest option to homeowners looking to refinance or new homebuyers with little money to invest.
Therefore, the buyer agrees to take a higher interest rate, and the lender pays closing costs. In the end, an honest lender will take the time to explain which option is best for the buyer and ensure the borrower isn’t ultimately going to pay an excessive amount of money over the life of the loan as a result of utilizing the benefit of lender credits initially.
Things to keep in mind before choosing the Best Lender for VA Loans.
What can you do to prepare for loan approval? Underwriters will scrutinize your personal finances, so be aware that the minimum credit score for a VA loan is 620. In some cases, they will make exceptions, but it is best to stay at 620 or higher and avoid riding too close to the minimum credit score requirement. Occasionally, banks will finance a buyer with very low credit scores; however, in most cases, these loans come with very high interest, which isn’t always the best option for the buyer.
For this reason, it is advisable to be patient and focus on improving credit reports, and then begin seeking a loan. Secondly, collect documentation for the mortgage application process, such as the Certificate of Eligibility (COE). The following steps are relatively straightforward. You will need to check your debt-to-income ratio (DTI) and be sure to maintain a consistent credit pattern. Lenders don’t want to look back at a borrower’s credit history and see newly financed items.
Finding a VA Lender
While not all lenders offer VA loans, there are plenty who do. The key is finding an experienced lender who can help navigate the criteria set in place by the VA and the standards of practice commonly followed in the mortgage financing arena. Seeing that a simple Google search will provide endless homebuying lender options, the first and most important advice is to avoid filling out numerous online applications. Instead, talk to friends, especially military friends.
More often than not, they can connect you to their lender. In most cases, lenders will take the time to sit down and have an in-person conversation with prospective buyers. After all, buying a home is one of the most significant financial decisions a person will ever make, and having a personal connection with the team representing the financial aspects of the transaction is of utmost importance.
Now that you know how to find the Best Lender for VA Loans, let’s connect you with someone who can help.
The steps are simple:
1. Schedule a Call: An experienced loan officer can discuss your needs and guide you through the possibilities.
2. Get Approved: We’ll help you through the application process and facilitate the steps for approval.
3. Exhale: Put your feet up and feel secure knowing you made the best decisions about your home loan.
With proper guidance, you can get your first home, accommodate your growing family, and start that renovation project—whatever goal is on the horizon. An alliance with Mortgage Insiders will give you the confidence to know that your mortgage loan is setting you up for financial success. Mortgage Insiders offers today’s latest financial news and mortgage trends. Check out their channel for current events.
