Questions Veterans Should Ask Their Realtor About a VA Loan
Realtors are waking up to the fact that military families, veterans, and even single military men and women make up part of a growing homeowner niche. And, as more veterans and military members realize that a VA loan can open the door to homeownership, they too are beginning to look at homes. The one thing slowing veterans down in the process is not knowing where to start. How do you find a VA loan knowledgeable realtor, and what basics should you know about VA loans before you start looking? What questions should you ask?
What is a VA loan, and am I eligible?
Before looking for a realtor, find out if you’re eligible for a VA loan. You may be eligible for a VA loan if you meet one or more of the following:
- You have served 90 consecutive days of active service during wartime, or
- You have served 181 days of active service during peacetime, or
- You have more than 6 years of service in the National Guard or Reserves,
- You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
How do I apply for a VA loan?
To start your home buying process, you’ll need to apply for a VA Loan Certificate of Eligibility (COE). You don’t have to have the certificate in hand to start the loan process, but you’ll need it very soon after you start looking as it’s a critical part of your loan application. Your COE verifies your eligibility for a VA loan. You can apply for a VA Loan Certificate of Eligibility three different ways:
- Apply through a VA approved lender
- Apply online through the VA’s eBenefits portal
- Apply by mail by contacting the Veterans Administration directly and filling out Form 26-1880
How much can I borrow?
You might be surprised. There is a $424,000 VA loan ceiling before you must have a down payment. This limit applies to most counties in the US. However according to the Veteran’s United Network, a VA loan lender, there are over 200 high-cost counties where the max VA loan amount rises to $636,150. In Orange County, California, for example, lenders can issue loans up to $636,150 with a 25 percent guaranty.
Why a $424,000 loan ceiling? Because of the “VA guaranty.” The VA guaranty is the amount of each VA loan that is backed by the federal government. If the borrower defaults on the loan, that guaranteed amount is paid back to the VA lender by the Department of Veterans Affairs. Lenders are usually promised 25 percent backing on each VA loan. But that backing typically maxes out once a loan hits $424,000.
Lenders are free to issue VA loans above that amount, but they won’t be granted additional backing. Since that puts more of a lender’s funds at risk, lenders will often refuse to issue loans over the $424,000 benchmark. If you have a history of golden credit or a top credit score, you may be able to exceed that. You may also exceed that limit if you can put up a deposit. Either way, it’s a great deal.
Myths about VA Loans
Don’t believe everything you hear about VA loans without speaking to an expert or doing your research. For instance, many people believe a VA loan is a one-time loan. It’s not: you can apply for (and get) more than one home. If, for instance, your first house cost $150,000, you still have more than $175,000 left to borrow against.
Do I make enough to qualify for a home loan?
You don’t have to make a general’s pay to qualify for a loan. You are expected to have a stable, reliable income that will cover your monthly expenses – including a mortgage payment.
You may think you can get by on MREs (meals ready to eat), or the base dining hall, but the VA requires borrowers to have residual income left over each month after your major expenses are paid.
This excess, called “residual income,” is meant to cover common expenses like food, transportation, clothing, etc. Your realtor should be able to help you figure out what your income to loan ratio is.
How do I find the right realtor?
There are five questions every veteran should ask their realtor before signing any paperwork or looking at any homes:
- Do you have any military experience yourself? While it’s not necessary that your Realtor has a military background, it’s a lot easier if they understand the military culture, and what certain terms and procedures are.
- What’s the plan? Your realtor should meet with you in their office, and present a detailed plan for how to proceed with the home buying process before you ever start looking at houses.
- Can you give me 3-5 references from other military families you’ve worked with? This realtor may or may not be a good realtor whether they have worked with military families or not. Getting references from other military families will give you a good idea of whether this person knows what they’re doing, and has done a good job with other military families in the area. Even if a family has moved out of the area, you can still call them to get feedback.
- Who are the other people on your team? You’ll be meeting other people connected to the home buying process. Who are they? You’ll need a home inspector, and ______, ______, and ______. Realtors tend to use people they know, trust or work with regularly. So, you’ll be working with them too.
- Have you done your due diligence? Talk to your squad buddies, your lieutenant, and anyone else on base who may have bought a home recently. Ask them about their experience. Referrals are golden to realtors, so find one who has done a lot of work with local military vets.
Take your time, make a plan, do your research, and you’ll find the home buying process is easier than you thought.