Financial Education

A VA Loan may be your answer to homeownership

The VA Home Loan program began as part of the Servicemen's Readjustment Act of 1944, which helped veterans returning from service in World War II readjust to civilian life, including assistance with buying a home. The rules and regulations have changed through the years (the original bill stated the loan could be no more than $2,000) and, since its inception, millions of service members have become homeowners thanks to the program.

Whether you're ready to leave the service, or even on active duty (thanks to fewer moves in the modern military), now is a good time to buy a home since the current housing market is seeing a glut of available, and affordable, properties. And by following a few tips you can find a lender who can make the process as smooth and easy as possible.

Get paperwork in order
One of the main things you'll need is a Certificate of Eligibility. This lets the lender know you are truly qualified to get a VA loan. Which type you need depends on your military status, which is broken into three categories:

Veterans, active-duty personnel, and reservists/National Guard members who have served on active duty.

Reservists/National Guard members who have never served on active duty.

Surviving spouses of veterans who died in service or as a result of service.

Each has its own set of paperwork needed to obtain the certificate. Note that you can also ask the lender to obtain this for you if needed—some lenders will even handle all of the paperwork for you, giving you one less thing to worry about during the process.

A full list of what you need is at www.homeloans.va.gov/eligibility.htm, while answers to most questions can be found at www.homeloans.va.gov/faqelig.htm.

The importance of military-friendly customer service
One of the best ways to make the process enjoyable is to work with a lender that has a friendly, knowledgeable staff that won't pressure you into a decision, and that is more focused on offering you the right product, with good customer service, rather than just trying to earn a commission.

Even better is if the lender has one contact person who works with you from beginning to end. Many lenders will send you to one person who gets the paperwork, another who does the original offer, and yet another to do the closing. Having just one person as a point of contact throughout the entire process creates a better relationship, improves communication, and can even reduce stress.

Also make sure to find a lender that truly understands the military. Military families live a unique lifestyle, and it's important that your lender understands how things like deployments, frequent moves, and other issues affect your life. One way they can do this is through the USA Cares Military Family Housing Lender Education Program.

USA Cares, a respected non-profit that helps military families struggling with their finances, has set up this lender certification program (which is funded by Fannie Mae) to help those outside of the military better understand what it's like to be inside of it. It includes information on the military pay grade system, ranks, acronyms, what happens when a service member is relocated, and the way benefits are handled if a service member is injured.

The goals of the program are to give military families mortgages that are stable and affordable, while connecting the lender to the military so it can provide the level of service, understanding, and respect those families deserve.

Ask if your lender is either familiar with military life, or has a certification like the one offered by USA Cares. It can make the process of getting a mortgage much easier.

Find the fewest fees
In addition to the mandatory VA funding fee (which, if required, can be up to 3.3 percent of the borrowed amount), you might have origination fees and several other loan costs or fees, all of which can add up quickly. And while you will probably not be able to get a loan completely free of all fees, you can look for—and perhaps negotiate with—lenders to get the fewest fees possible.

Also be sure to ask upfront what fees the lender charges, and look for a lender that may waive things such as the origination fee. While it may not seem like much at first, eliminating even a few fees can make a big difference in the long run.

Other considerations
A few other things to think about when getting a VA loan:

A full 91 percent of all VA loans are made with no down payment, and many are financed at 100 percent. Very few lenders are currently offering such loans, so that can be a huge benefit for families without much cash on hand. But there are a few things to note about full financing:

Most lenders will only offer 100% financing on a new home purchase, not a refinance.

Waiving a down payment can help you get into a house with less money upfront, but you will have a higher mortgage payment since you will wind up paying interest on the higher loan amount associated with zero down.

If you decide to roll the fees into the mortgage itself, you will wind up paying interest on those fees, meaning they will cost more in the long run.

In short, full financing is a great way to get you into a house without much money down, but paying as much as you can upfront makes more fiscal sense and will save you a great deal of money over the life of the mortgage.

Although the VA imposes no limit on the loan amount, most areas are restricted to a maximum of $417,000 unless you put additional money down, or if the property is located in what is known as a “high cost area,” such as parts of California and New York. So be sure to ask your lender for specifics for your area.

The process may take a bit longer than that for a traditional mortgage due to all of the necessary paperwork you need for a VA loan. The benefits are certainly worth the wait, but you will need to factor in this extra time, especially if you are in a hurry to move.

You cannot use a VA loan to buy an investment property or vacation home, but you can use it for more than just buying a new home, such as refinancing an existing mortgage and for certain home improvements (e.g., making your home more energy efficient). Each type of need has different requirements, so make sure you go over those with your lender.

The tax break for home purchases has been extended for service members who have been deployed overseas more than 90 days from Dec. 31, 2008, to May 1, 2010. You just have to sign a purchase agreement by April 30, 2011 and close the transaction by June 30, 2011.

The best way to find out how a VA loan can benefit your family is to contact an approved VA lender, such as MidCountry Bank. They will have the information you need to get the process started, answer questions you may have, and help you get a house that you can call home. For more information, contact a MidCountry Mortgage VA Loan Specialist at 877-767-8385.

About Joe Freeman
Joe Freeman is Chief Operating Officer for Pioneer Services, the Military Banking Division of MidCountry Bank. He is responsible for all lending and retail operations, strategic planning, and manages a diverse group of more than 200 associates spread across various geographic locations. Freeman has more than 15 years of experience in accounting, operations, consulting, and marketing. He is a successful entrepreneur, a former manager in a Big Five accounting firm, and an expert in managing operational processes, improving efficiencies, and developing strong exceptional teams.

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