By Amy Miller, AFC®
Spring is often thought of as the start of the home-buying season. Although last year proved to be challenging with high home prices and rising interest rates, a recent study conducted by Veterans United Home Loans indicates that a large number of service members (around 30%) and Veterans (around 15%) plan to buy a new home in 2023. Further, the study showed that more than half of all current service members plan to purchase a home in the next two years, and 71% plan to buy one in the next 5 years.
The ability to purchase a home without a down payment may have many service members and Veterans turning to the Department of Veterans Affairs (VA) Loan Benefit to finance their home. However, the same study also found that many are unaware of their VA eligibility and lack knowledge of how VA loans work. With that in mind, and spring just around the corner, we compiled a list of tips for VA loans for 2023.
VA Home Loans
A VA home loan is often the best choice for service members, veterans, and eligible surviving spouses when buying a home. A VA loan allows them to finance the purchase of a new home with the benefit of no down payment and no mortgage insurance requirements. These loans will often also offer lower interest rates than many other mortgage loans.
The VA requires most buyers to pay a one-time funding fee at closing. This fee is used to help keep costs down for taxpayers and allows the program to continue providing no down payment and lower interest rates to more buyers.
Funding fees are set by the VA, not the mortgage lender, and range from 0.05% to 3.6%, depending on the type of loan and if you’ve used the benefit before. It is based only on the amount of the loan, not the purchase price of the home, and can be lowered with a down payment of at least 5%.
Just last month, the VA announced new reduced funding fees for purchases, construction loans, and cash-out refinances that are closed on or after April 7, 2023. Below is a breakdown of the fees:
Down Payment First Time VA Loan Use Subsequent VA Loan Use
No Down Payment 2.3% 3.6%
5% or More 1.65% 1.65%
10% or More 1.4% 1.4%
Paying the fee out of pocket is an option but most borrowers choose to finance the fee into the loan at closing. Buyers also have the ability to ask the seller to pay the fee for them.
Funding Fee Exemptions
Most borrowers will be required to pay the VA funding fee, however, there are exemptions available to individuals that receive compensation for service-connected disabilities.
How to Qualify
Service members with at least 90 continuous days meet the minimum active-duty service requirement to qualify for a VA Loan. The requirement for Veterans depends upon when they served.
A Certificate of Eligibility (COE) must be obtained from the VA and then presented to the lender to confirm the borrower can participate in the loan program. The pre-approval process can be started before obtaining the COE but it’s not recommended. The process tends to go more smoothly if the COE is obtained first and given to the lender in the beginning.
VA mortgage products and services will vary by lender, so it’s important to shop around to find a lender that you are comfortable with and that meets your specific needs.
For more information on VA Home Loans, visit the VA’s website at VA-Backed Veterans Home Loans | Veterans Affairs