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What makes VA loans special?

The nation's active duty service members and veterans are a lot of things. Loyal. Patriotic. Courageous. Resilient. Strong-willed. Family-oriented. Important. And that's just a handful of the words that come to mind. 

Here's another term that's highly characteristic of America's best and brightest: homeowners. On the surface, you may not think this word applies, given that those currently serving may be forced to relocate themselves at any given time. But as data from the National Association of Realtors shows, former or current members of the military represent roughly 1 in 5 recent homebuyers. And of those buyers who are on active duty, their median age is 34 - quite young compared to the typical civilian buyer (42 years old).

When current and formerly active members of the United States military are looking to buy, they have many options to do so. And when it comes to their preferred mortgage type, one stands supreme: VA loans. Whether you've long been a member of the armed forces or served for only a brief amount of time, VA loans are a great way to enter the housing market affordably and in a manner that's in keeping with your current situation and circumstances. As their title connotes, VA loans are backed by the United States Department of Veterans Affairs. This basically means that should a borrower default, the VA guarantees the mortgage issuer that the loan will be paid off in full.

But there's much more to VA loans than their being supported by the federal government, a fact which on its own make this product a desirable financing tool. Here are a few other elements of VA loans that can help you decide if this mortgage is the one for you and determine whether you're eligible to apply.

No down payment is required
Perhaps the biggest perk of VA loans is borrowers don't have to put any money down up front. A common misconception when it comes to mortgage is the notion that a down payment of 20% or more is required. Not only is this not true, but the actual percentage homebuyers put down is considerably smaller than that, averaging between 3% and 3.5%, according to the NAR. This makes homeownership much more realistic for families who are on a budget, as a 20% down payment on a median-priced home in the U.S. would cost upwards of $53,120 (the current median for an existing home is $265,600). However, even a down payment of 3.5% - the equivalent of $9,285 - is no drop in the bucket, either.

The ability to forego the down payment is part of what makes VA loans so popular. At 56%, most active duty do not put any money down when they buy a house, based on the latest figures from the NAR. Roughly 41% of veterans take advantage of no money down financing as well.

Length of service required varies to be considered eligible
There are roughly 1.3 million men and women who are now on active duty, according to estimates from the Pew Research Center. That's down from 1.4 million in 2010 and 2 million in 1990. Virtually all of them will receive veteran status should they decide to retire from the military. It raises an interesting question: How long do you have to be in the service to be qualified for a VA loan? The answer to this question isn't always clear cut and largely depends on whether the U.S. is in war or peacetime. For example, if it's wartime - a designation that the VA ultimately determines - service time required for VA loan eligibility is usually 90 days. But if it's during peacetime, it's roughly double that at 181 days.

VA loan eligibility may also be contingent on the branch of the military you are or were in. For example, if you're in the National Guard or Reserves, six full years of service is required.

Surviving spouses of service members may also be eligible to apply for a VA loan. But here as well, there are various circumstances that determine when you become qualified. The best course of action if you're unsure is to talk to your lender directly and tell them your situation.

Funding fee replaces private mortgage insurance
Another advantage of VA loans is borrowers usually don't have to purchase private mortgage insurance. Normally, when a buyer takes out a loan and puts down less than 20% of the home's purchase price, they have to buy mortgage insurance to ensure the loan is paid off in the event of default. Such a policy is not mandatory for VA loan borrowers. In lieu of private insurance is a basic funding fee, which is typically around 2% of the home's value. This amount is paid to the VA. However, this amount may be lowered to 1.5% with a down payment of 5% or 1.25% by putting 10% down. The VA Funding Fee can also be financed into the loan amount or paid in cash.

The funding fee may be waived entirely, though, in certain circumstances, such as if your spouse died while in the line of duty or from a disability which stemmed from his or her time in the armed forces. Veterans who have a 10% disability and receive disability checks are also exempt.

If you're in the military or are a veteran, you've achieved quite a bit. A VA loan can put you in position to add "homeowner" to your list of accomplishments. Please contact us to learn more.