VA Loans Myths Unmasked

The VA Home Loan stands as the most potent tool available for purchasing a home. 

Despite its historical effectiveness, numerous misconceptions and myths prevent countless Veterans and Servicemembers from utilizing this benefit. This is partly due to a lack of awareness – approximately one-third of Veterans who are home buyers were unaware of their home loan benefit, as per data from a VA survey. Thus, it's essential to debunk four prevalent VA Loan myths.

Myth 1: VA Loans are terrible.

Fact: VA Loans are among the top loan options available in the market.

Eligible buyers have the option to buy based on their Certificate of Eligibility without the need for a down payment. FHA loans necessitate a 3.5-percent down payment, while many traditional lenders require a minimum of 5 percent. Not having mortgage insurance, which is a characteristic of FHA loans and a requirement for conventional loans without a 20 percent down payment, can result in monthly savings of over $200 for Veterans. The VA also sets restrictions on what lenders can charge in closing costs. Moreover, sellers have the option to cover all of a buyer’s mortgage-related closing costs and up to 4 percent in concessions. These concessions can be used to cover pre-paid expenses or even pay off collections and judgments at closing.

Myth 2: You must have excellent credit to obtain one.

Truth: You don't necessarily require "excellent" credit.

VA Loans are generally more forgiving than standard loans when concerning your credit history. Indeed, VA has no credit limit, although it's worth noting that VA lenders typically seek a 620 FICO score, which is considered "Fair" credit (followed by "Good" and then "Excellent"). In comparison, traditional loans often necessitate a minimum credit score of 660, and you may need a score of around 740 to secure the best rates and terms. Furthermore, VA Loans enable Veterans and active military personnel to recover more rapidly following a bankruptcy, foreclosure, or short sale. Eligibility for a VA Loan can be achieved two years after a Chapter 7 bankruptcy discharge, one year following the filing of a Chapter 13 bankruptcy, and two years after a foreclosure. Some lenders do not enforce a mandatory waiting period after a short sale. In contrast, with conventional loans, you're typically looking at a wait period of four to seven years before being able to purchase again.

Myth 3: It takes an eternity to close VA Loans.

Fact: They closeas quickly as the others, and they have a higher probability of closing compared to both conventional and FHA loans.

There is a misconception that buyers using VA loans are burdened by red tape and paperwork. However, the truth is that increased automation and efficiency, along with other enhancements in recent years, have allowed the VA Loan Guaranty Program to maintain momentum. In March, according to Ellie Mae, both conventional and VA purchase loans took an average of 44 days to close. Remarkably, VA Loans have a higher likelihood of closing compared to conventional loans, which is beneficial for both buyers and sellers. Ellie Mae's data also indicates that 70% of VA purchase applications submitted in the last 90 days were closed. This is in contrast to 67% of conventional purchase applications and only 61% of FHA applications.

Myth 4: No down payment makes these risky loans.

Fact: VA Loans have been the safest on the market since the housing crash.

Even with the advantage of no upfront payment, VA Loans have maintained the lowest foreclosure rate compared to all other mortgage types for the majority of the past seven years. The robust appraisal process of the VA, along with its practical requirement for discretionary income (also referred to as residual income), significantly contribute to the safety of the program. However, the primary factor is the unwavering commitment of the Loan Guaranty Service to assist Veterans in retaining their homes. The program keeps a record of every VA Loan across the nation. Employees of the Loan Guaranty are alerted whenever a Veteran falls more than 60 days behind on their mortgage. These specialists in foreclosure prevention then reach out to the homeowner and directly negotiate with lenders and servicers to explore other options besides foreclosure.

Myth5: This is a one-time benefit.

Fact: Once you earn this, it’s yours for life.

The benefit is not just a one-time opportunity. Eligible Veterans have the opportunity to utilize the VA Loan Guaranty Program repeatedly. Indeed, it is feasible to have several active VA Loans concurrently. Even if you lose a VA Loan to foreclosure, it doesn't imply that you are no longer qualified.

Each of these misconceptions could prevent Veterans and service members from looking into their well-deserved home loan benefits. Collectively, they underscore the necessity for ongoing education and increased consciousness about this longstanding home loan scheme.