Home financing translated into English that a normal person can understand…Part Two.
Last week we discussed FHA mortgages – What they are, what advantages they bring and what disadvantages are associated with them. As was mentioned in that blog, a home buyer needs to begin the purchasing process by finding a good Realtor and a good lender. The lender can then explain all of the options (and they are many), and help you ascertain which type of funding best fits your situation.
Our goal here is to give you just enough information about the types of financing available so that you will be a little more comfortable when you meet with your lender.
Everybody has heard of them, but what exactly are they? A VA (or DVA) loan is a mortgage guaranteed by the US Department of Veterans Affairs. This program is for American veterans, current military members, reservists, and some select surviving spouses. It can be used for just about any type of single family residential property, including new construction. The basic intention of the VA home loan program is to supply financing to help eligible veterans purchase a home without a down payment.
The main benefits of a VA loan include: Typically no down payment is needed; no Private Mortgage Insurance premiums (PMI) are required; buyers closing costs are limited; interest rates are often lower than with other loan types; and higher debt-to-income ratios are allowable.
The disadvantages of a VA loan are: A funding fee must be paid by the veteran (2.15% to 2.4% of the loan amount the first time the borrower uses his/her VA benefit and even higher thereafter), though this fee is typically financed or “rolled into” the loan; these loans are for owner-occupied property only, not for any type of income property, VA loans are difficult, if not impossible, to use for homes valued above a million dollars; and there is a perception among some sellers and some Realtors that VA loans are difficult to navigate and tough on the sellers. (While this last point was at least partially true in the past, it is mostly untrue today.)
In the vast majority of cases, an eligible veteran will find that taking advantage of the VA benefit he/she has earned is the best choice for home financing, however there may be some situations where another program may be more advantageous. Again, this is where a good loan originator can guide you through the choices and help you find the deal that is best for you.
Once again, “Thank you” to all of our veterans for your service to our country, and the best of luck to you as you seek to find your new home!!
Coming next, Conventional financing…