Buying a home while in the military comes with its own set of pros and cons. One of the biggest pros for many military families is the option of using a VA loan to help supplement the down payment for a new home. There are many banks that offer VA loans, but not all VA lenders are created equal. Here are some things to look for in a VA lender when considering purchasing a home with a VA loan.
What is a VA loan?
A VA loan is one of the benefits available to active duty, reserve and retired veterans as well as eligible spouses of veterans through the Veterans Benefits Administration. The VA loan allows current and prior service members to secure a home loan from a private lender like a bank or mortgage company buy guaranteeing a portion of the loan.
A VA loan can be applied for things other than a purchase of a home. For home buyers, however, a VA loan can cover up to 20% of the home’s purchase price to be used as a down payment for the home at closing.
In order to be eligible for a VA loan, a home buyer must have “satisfactory credit, sufficient income to meet the expected monthly obligations, and a valid Certificate of Eligibility,” according to the Veteran’s Benefits Administration website.
Certificate of Eligibility
A Certificate of Eligibility (COE) is a document stating a lendee’s income in order to verify the loan amount for which they are eligible. Any party who is applying for the loan will need their income verified. For active duty service members, you will need a copy of your Leave and Earning Statements (LES) from the last two years. If a spouse is also applying to be on the loan, you will also need their income in the form of tax returns, W2s or 1099s if applicable.
There are different requirements depending on if you are active duty or a veteran. Check the Department of Veteran’s Affairs website to see the exact documents you will need in order to apply for a COE.
What to look for in a VA lender
Applying for a VA loan and obtaining your COE is only a portion of the loan process. You will still have to find a private bank, mortgage company or credit unions to secure the rest of your home loan. Many private banks, mortgage companies and credit unions can help you apply for your VA loan and COE with them, or you can do it on your own and take your COE to the lender of your choice. But how do you find the right lender?
Kevin Parker, vice president of field mortgage origination with Navy Federal Credit Union, said that military families should look for VA lenders that are familiar with the VA loans.
“Most banks will have the option of using a VA loan. But not all banks specialize in them,” Parker said.
With VA lenders like Navy Federal Credit Union, you will have a loan officer that is not only familiar with the VA loan process but is also familiar with the military lifestyle.
“At Navy Fed, every single one of our employees goes through service member training so every person — loan processors, [loan] officers, and lenders are familiar with the VA loan and [the military lifestyle].”
Parker also said that you should consider using a portfolio lender. A portfolio lender is a bank that originates and maintains a mortgage loan rather than selling the loans to a secondary market. In order words, banks like Navy Federal Credit Union will maintain your mortgage for you the entire time you have it with them rather than letting another company handling the loan after you have secured it.
The benefit of using a portfolio lender is that loans are often easier to secure because they do not have underwriting guidelines with a secondary lender and there is more flexibility to meet the financial needs of the customer.
“[It gives] a flexible option to the member when deciding how to finance the loan,” Parker said.
Finding a bank you can trust that serves military members is a huge plus for those looking for a VA loan.
“Find a VA lender that serves the military in general and has other banking needs,” Parker said.
Should you use a VA loan?
There are two basic types of loans available to veterans: the VA loan and a conventional loan. A VA loan can be very useful in that it offers additional protections to service members, veterans and eligible spouses.
“A VA loan has special criteria,” Parker said. Things like termite inspections, home inspections and home appraisals by VA loan approved companies are required, whereas they may not be required with conventional loans.
“[You] have a bit more comfort in buying a home [with a VA loan] because the government has assisted in knowing that this is a safe property.”
It is important to remember that you can only use the VA loan on one property at a time, though. Banks that are familiar with military service members buying and purchasing homes as investment properties while using the VA loan and conventional loans is important to consider when looking for a VA lender.
“There is no pre-payment penalty with a VA loan,” Parker noted. “[So] that gives [you] flexibility on how often [you] have to buy or a sell a property.”
Whether or not you use a VA loan is up to the home buyer, but if you don’t have enough for a substantial down payment, you may want to consider using a VA loan to help supplement your loan, bring down your interest rates and invest in your family’s future.
