Top VA Loan Misconceptions
Misconception #1: VA LOANS ARE DENIED AT A HIGHER RATE.
According to anecdotes from many sources, VA loans are harder to process and approve.
Misconception #2: VA LOANS ARE EXPENSIVE FOR VETERANS.
VA policy aims to help Veterans utilize their home loan benefits. Therefore, VA regulations limit the fees that the Service Members and Veterans can pay to obtain a loan (see Chapter 8: Borrower Fees and Charges and the VA Funding Fee). According to VA lending guidelines, “lenders must strictly adhere to the limitations on borrower-paid fees and charges when making VA loans”.
Misconception #3: PEOPLE WITH WEAK FINANCIAL BACKGROUNDS USE VA LOANS AND OTHER "NO DOWN PAYMENT" MORTGAGES TO BUY HOMES.
Veterans don’t use VA loans because they have weak financial backgrounds. We compared the net worth of Veterans who used VA loans to purchase/own a home to Veterans who rented, using the most recent Survey of Consumer Finances (SCF), a triennial survey of U.S. families.
Misconception #4: FHA OR CONVENTIONAL LOANS ARE BETTER FOR VETERANS THAN VA LOANS.
Veterans are provided with a lower interest rate through the VA IRRRL program.VA IRRRL recipients also have the ability to skip the appraisal and proof of employment processes in most cases, do not need to verify debt-to-income or have a minimum FICO score check, can change loan terms, and can possibly get a faster closing.
Misconception #5: VA LOAN APPRAISALS ARE SLOW TO PROCESS AND USUALLY COME BACK WITH LOW VALUES.
On average, VA loan appraisals take seven to ten business days to complete, which is typical of both Conventional and FHA loans. BUT also have the VA backing to motivate VA Approved Appraisers at efficient completion timelines AND allow the VA Eligible Borrower up to two different rebuttal processes for valuations.
Misconception #6: SELLERS HAVE TO PAY ALL CLOSING COSTS.
The VA Lender Handbook 26-7 includes Chapter 8: Borrower Fees and Charges and the VA Funding Fee.Topic 2 and 3 cover the fees and charges the Veteran-Borrower CAN pay and CANNOT pay, respectively. Appraisal and Compliance inspections, Recording Fees, Credit Report, Prepaid Items, Hazard Insurance, Flood Zone Determination, Survey, Title Examination,Title Insurance, Special Mailing Fees (for Refinance Loans), VA Funding Fee, MERS Fee, and Other Fees Authorized by the VA are fees that CAN be paid by the Veteran. And this also includes Origination fees not to exceed 1% of the total loan amount. Of note - there are exceptions in construction or rehabilitation loans to the flat 1% fee rule.
Misconception #7: VA LOANS CAN ONLY BE USED ONCE.
Like other types of mortgages, VA loans are subject to regulation, disclosure, and VA lending guidelines.The VA loan benefit can be used multiple times, and the funding fee will vary for subsequent uses.
VA LOAN FULL ENTITLEMENT
The maximum amount a Veteran, service member, or survivor can take out on a VA loan is no longer $144,000 for those with full entitlement. Therefore, borrowers don't have to pay a down payment, and if the borrower defaults on a loan over $144,000, the VA will pay their lender up to 25% of the loan amount.
If any of these conditions are met, the borrower has full entitlement:
The borrower has never taken advantage of their home loan benefit, or
The VA loan the borrower previously had has been fully repaid, and the property was sold (in this case, the borrower would have their full VA entitlement again), or
The home loan benefit has been used, but the borrower had a foreclosure or compromise claim (also called a short sale) and has repaid in full.
Note: Additional entitlement, bonus entitlement, and tier 2 entitlement are termsoften used. The VA uses these terms when communicating with lenders about VA-backed loans over $144,000. These terms will not be required when a borrower applies for a loan.
VA LOAN Remaining ENTITLEMENT
In the event the borrower has remaining VA home loan entitlement, their VA home loan limit will be determined by the county loan limit in their county. In the event ofa loan default, the VA will pay the borrower’s lender up to 25% of the county loan minus any entitlement they have already used. The county loan limits are available here.
The remaining entitlement can be used to take out another VA home loan, either alone or in conjunction with a down payment.
The borrower’s VA loan is active, and the borrower is still repaying it, or
The borrower owns the home outright and has already paid off a previous VA loan, or
The borrower’s VA loan was refinanced into a non-VA loan, and they still own the home, or
These scenarios may indicate that the borrower still has remaining entitlement:
In the past, the borrower made a compromise claim (or short sale) on a VA loan that was not repaid in full, or
If the borrower transferred their home's title to the bank holding their mortgage as part of a deed in lieu of foreclosure on a previous VA loan, or
The VA foreclosed on an earlier loan the borrower took out and didn't fully repay the loan
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