Mortgages

5 Homebuying Hiccups for Veterans to Avoid

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Many homebuyers and agents shy away from the Department of Veterans Affairs (VA) home loan program for fear that the process is too difficult or restrictions are too numerous. But if you’re a veteran in search of a mortgage, you don’t have to let these misconceptions drive you away from them.

These government-backed mortgages are actually among the most flexible and forgiving. In fact, this loan program is booming right now because it’s become increasingly difficult for veterans to secure conventional and even FHA financing. VA loan volume is up 370% since 2007, and the program backed a record 630,000 mortgages in 2013 alone.

VA loans have some notable benefits. But they’re also a specialized loan product with unique requirements, some of which can become sticking points for veterans and real estate agents.

Here’s a look at five common potential hurdles for VA homebuyers and how to clear them.

1. Occupancy

The VA loan guarantee requires you live in the home as your primary residence. This means the VA loan can’t be used to purchase a rental property or vacation home. But it doesn’t mean that you can never rent out the property.

Many VA buyers purchase in one location and are then transferred to another location. There’s no prohibition on renting out a property after you’ve occupied it. In fact, renting a former primary residence is a tool many military buyers use when they receive a Permanent Change of Station (PCS). It’s even possible to have two or more VA loans active at once, allowing you to rent the home at your old duty station and purchase a home at your new one.

Takeaway: If you’re looking to purchase a primary residence, you’ll likely meet the VA occupancy requirement.

2. A Less-Than-Optimal Credit Score

The VA doesn’t set a minimum credit score requirement, but it also doesn’t actually make home loans. The lenders that do will have credit standards prospective borrowers must meet. VA lenders are typically looking for a minimum credit score of 620. That’s considerably lower than the 740 many conventional lenders require. Even FHA lenders often want to see at a 690 and higher.

But credit and finances can suffer given the unique strain and sacrifices of military service, making even a 620 tough to maintain. Checking your credit scores and looking for opportunities to improve your credit ahead of time can benefit you once you’re ready to buy a house.

Takeaway: A sub-620 credit score isn’t the end of the road. With a little time and dedication you can improve your score and use your hard earned VA benefits.

3. Residual Income & Affordability

Despite their no-down-payment requirement, VA loans have been considered to be among the safest mortgages on the market for nearly all of the last five years. One of the big reasons for this is the VA’s residual income requirement.

This standard was established to ensure military buyers were purchasing truly affordable homes. Basically, the VA wants to confirm you have enough money remaining each month after major bills to cover things like food, gas and other necessities that don’t show up on a typical loan application.

Residual income is based on geography and family size. For example, a family of four in Missouri would need at least $1,003 in residual income each month in order to meet the guideline.

Your loan officer will consider residual income when calculating your loan pre-approval amount.

Takeaway: If you don’t meet the residual income requirement for the home you desire, consider lowering your loan amount or look at options to discount a portion of the residual with outside income.

 

4. Appraisals

True or false: You can only buy a home in immaculate condition with a VA loan.

That statement is false. A home doesn’t have to be immaculate or brand new, but it does have to meet the VA’s minimum property requirements (MPRs) to ensure the home is safe, sound and sanitary. Is there awful wallpaper from the ‘70s? That’s OK. Is paint chipping off the outside of the home? That’s probably not going to fly.

The good news is many MPRs can be remedied to allow the sale to move forward. Agents who know and understand these MPRs can guide you to “move-in ready” homes or include provisions in the contract that will remedy known issues early on.

Takeaway: Work with an agent who has VA buyer experience. Leverage their knowledge of the MPRs to your advantage when shopping for a home.

5. Manufactured Homes

Understand at the outset that you’ve got a tough road ahead if your goal is to purchase a manufactured home using your VA benefit. Many VA lenders steer clear of these properties, perhaps more commonly known as mobile homes.

Start with your local credit union to see if they offer this specific type of financing, and then work your way through a list of other lenders until you find a company you feel comfortable managing your loan process.

Takeaway: Purchasing a manufactured home with the VA loan guarantee is possible. You’ll just have to conduct some research into mortgage companies, and prepare for a lot of trial and error.

[Editor’s note: Knowing where you stand with your credit can prepare you for your search for a home.  By checking your credit reports – which you can do for free once a year at each of the major credit bureaus – for errors and negative items, and your credit scores – which you can do using a free tool like Credit.com’s Credit Report Card – you can have a better idea of whether you’ll qualify.]

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  • Kathleen D.

    it is very important to interview multiple Realtors before finalizing a
    Realtor because it is the realtor who is going to help you in the entire
    home buying process. Thanks a lot for sharing this blog.

    http://kathleen-donoghue.com/

  • rich k

    i was told by a lender outside of this source that due to a $4,800 collection from an old car on my credit report there was no way i could qualify for the VA loan. Is that true?

    • Anton

      If you believe that you shouldn’t but a home. However, if your credit score is over 640 you should he just fine. Well as long as you served in the military and qualify.

  • http://www.Credit.com/ Gerri Detweiler

    I checked with Samantha and she suggested talking with your loan servicer as they may have provisions covering this issue. Some require you live in the home for a year (or more) but that will depend on the language in your loan documents.

  • http://www.veteransunited.com/ Chris Birk

    @Dewayne: Thanks for writing and for your service to our country. Yes, it’s possible to have two VA loans at the same time. But some or all of your entitlement will be tied up in the first house, which will limit how much you can borrow for the second before having to make a down payment. It’s also important to know that it can be tough to find VA lenders willing to make a true $0 down construction loan, so you may need to work with a builder or local lender and then look to refinance that short-term construction loan into a permanent VA mortgage. You can reach me anytime at chris@vu.com.

  • Bob Ueckerlele

    Heya,

    First time home buyer (tentatively). Looking to purchase in the Santa Cruz/Capitola area in California. Most of what’s available on the market are manufactured homes. Any suggestions from the peanut gallery on actually securing a VA loan for a manufactured home?

    Been googling around and getting exactly nowhere.

    Thanks for your service, vets.

    • http://www.veteransunited.com/ Chris Birk

      @Bob: Thanks for writing and for your service to our country. It can be tough to find VA lenders out there willing to loan on manufactured housing. Drop me a line at chris@vu.com, and I can send you a list of contacts and companies that might be able to help.

  • SDDiggler

    I bought my current home, refinanced with my VA entitlement. I now want to buy a second home, using the current as investment property. There is only a small amount of my entitlement remaining, so I am wondering if I should refinance into a conventional loan on the soon to be “investment” property, freeing up my VA eligibility for my new primary.

    • http://www.veteransunited.com/ Chris Birk

      Thanks for writing and for your service to our country. First, are you certain about your entitlement picture? You’d want to get a copy or have a lender get a copy of your Certificate of Eligibility to be sure. Depending on where you’re buying, the refi loan amount and the kind of home you’re looking to buy, you may have enough entitlement remaining to purchase with $0 down. Drop me a line at chris@vu.com if you’d like to take a closer look.

  • joseph173

    Will the VA approve a house that was built in 1930 but has had a contactor come in and completely remodel the house including plumbing and wiring?

    • http://www.veteransunited.com/futurehomeowners/ Samantha Reeves

      Hi Joseph,

      There is no specific limit on how old a home can be to receive VA financing, it just needs to meet the minimum property requirements. So a 1930’s home in good condition may pass that test if it’s been taken care of. Here’s a link to the minimum property requirements if you want to take a look at them – they are outlined in Chapter 12 of the Lender’s Handbook: http://www.benefits.va.gov/warms/pam26_7.asp Hope that helps! Thanks for reading.

      Samantha

  • Robert Booth

    I know a man who lived in a home for the past 27 years. Home was purchased for his wife from her mother with a va loan. Wife dies mother-in-law evicted son-inlaw who paid rent. Mother-in-law never lived at residence and is now selling Home.

  • Tim

    I only have half of my VA loan entitlement left and want to refi to a conventional so I can use it again, but If I don’t have an 80/20 loan to value on my current home am I able to get a refi done? Is it going to cost me extra cash if I refi to a conventional loan to free up my VA? Is there any truth to buying extra VA entitlement? ie if I put down 10K I get 40K in extra VA entitlement?

    • http://www.veteransunited.com/ Chris Birk

      @Tim: Thanks for writing and for your service to our country.
      You’d need to talk with lenders about their LTV requirements for a conventional refi. As for buying additional VA loan entitlement, no, that’s not possible.

      That said, depending on what kind of loan amount you’re looking for and other factors, you may have enough VA loan entitlement right now to purchase again with $0 down. If you ultimately come up short, you’d be on the hook for a down payment (25 percent of the difference between where your entitlement currently caps out and the purchase price) — you might want to compare overall costs between that option and pursuing a conventional refi.

      You can drop me a line at chris@vu.com if you want to talk in more detail.

  • http://www.Credit.com/ Gerri Detweiler

    We wish we could be of assistance but this is a legal matter that really requires the help of an attorney. Have you contacted Legal Aid?

  • Chris

    Can a veteran purchase a house with a VA loan and use it as a rental property?

  • Susie

    Bought a future retirement home with a conventional loan. I refied my current primary home with VA refinance . Have this home for sale so I can purchase a home closer to my employment hoping to use a VA loan to purchase it. Have excellent credit and employment history. Can I purchase the second home as primary with VA

    • http://www.veteransunited.com/ Chris Birk

      @Susie: Thanks for writing and for your service to our country. Yes, you may be able to do so. If you’re wanting to purchase the new before selling the old, you would have limited VA loan entitlement available. But you may still have enough to buy with $0 down. A VA lender would need to get a look at your Certificate of Eligibility. You can drop me a line at chris@vu.com if you’d like to talk in more detail.

  • debbie

    If the property has an additional building on it that is considered a guest cottage but has a kitchen, with that automatically disqualify for VA funding?

    • http://blog.credit.com/ Kali Geldis

      Hi Debbie –

      That’s a great question for a mortgage loan officer who specializes in VA loans — you can always meet with a lender without doing a credit check or committing to getting a loan through them. Stop by your bank or credit union and they can direct you to the right person!

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