VA Home Loans for First-Time Buyers

First-time home purchasers are typically younger couples just starting their families.  Most do not have a massive amount of money to purchase a house. With a veterans-guaranteed home loan, qualified borrowers could get into an excellent starter house with no cash down. Zero-down VA loans could save you thousands upfront.

VA Loans Offer Less Strict Qualifications

Many first-time homebuyers lack a strong credit history, which can mean not qualifying at all or not qualifying for an affordable interest rate. Since VA loans are government-backed, it is easier to qualify for competitive rates.

No Down Payment Option

VA loans are perfect for first-time homebuyers who do not have enough money for a down payment. Most mortgage programs require a cash down payment of 3% to 20%. Borrowers can put as little as zero money down with a VA-guaranteed mortgage.

However, if the borrower wants to buy a home with an asking price higher than the appraised value, the difference must be paid in cash and cannot be included in the loan amount.

No PMI for Military Home Buyers

An additional huge cash saver for veterans is the absence of monthly private mortgage insurance (PMI) premiums. VA home loans do not carry a VA-required mortgage insurance premium, which can save you a lot of money over the lifetime of the mortgage.

Many conventional mortgage programs require borrowers to pay mortgage insurance if there’s less than 20% equity in the house. PMI, or private mortgage insurance, isn’t needed or allowed in the veteran home loan program because it’s federally backed, eliminating the need for PMI. For first-timers, savings of hundreds of dollars each month may be vital for setting up college funds and for additional future financial planning.

For first-timers, setting up credit may take time. Traditional and additional mortgage programs often have stringent eligibility requirements, as they all come down to credit history. The eligibility guidelines for veteran loans could be less strict than those of traditional mortgages. First-timers with limited credit history may still be eligible under VA guidelines. The veterans’ guidelines allow lenders flexibility to decide whether a borrower is a good credit risk. Residual income, debt-to-income ratio, and credit score are weighed together to determine whether a military member is eligible for a veteran-guaranteed mortgage. Typically, credit history alone won’t keep the borrower from obtaining a VA loan.

Low Funding Fees for First-Time Buyers

For many military mortgage borrowers, the VA funding fee is required. The charge was set up to offset the government expenditures for the VA’s home loan program. Those who receive or are eligible to receive VA compensation for service-connected medical issues are exempt from paying the fee if the VA compensation has been decided upon and has been entered into the veteran’s VA records.

Those who apply for a VA loan but have not yet received a decision may be charged the funding fee and must apply for a refund (which is NOT automatic) once the VA updates the records.

Legislation known as the Blue Water Navy Vietnam Veterans Act changed the structure of VA loan funding fees. Gone are the different funding fee rates for active duty, Guard, and Reserve members, with a higher fee required for second-time or subsequent use of the VA loan benefit. (See the updated fee structure below.)

• First-time use with no money down – 2.15%
• 5 percent down – 1.5%
• 10 percent down – 1.25%

Second-time use VA loan funding fees are as follows:

• First-time use with no money down – 3.3%
• 5 percent down – 1.5%
• 10 percent down – 1.25%

VA Loan Funding Fee Exemptions

Veterans with service-connected disabilities and surviving spouses are exempt from the VA loan funding fee. Effective Jan. 1, 2020, the VA loan rules in this area include certain Purple Heart recipients. Who is eligible to have the VA loan funding fee waiver?

• Veterans receiving VA compensation for service-connected disabilities.
• Veterans are entitled to receive VA compensation for service-connected disabilities, but receive retirement pay or active service pay instead.
• Surviving spouses of veterans who died in active service or from a service-connected disability.
• Service members on active duty who provide (on or before the date of loan closing) evidence of having been awarded the Purple Heart and remain on active duty.

Purchasing your first house could be a milestone decision in your life. Plus, homebuyers can make use of all the assistance they can get when saving money during the process.  For eligible military members, using home loan benefits for the first time may make the experience simpler.

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