Many people know the benefits of a VA loan: zero down payments, competitive interest rates and no prepayment penalties. But there are many myths surrounding VA loans, including when you can use them, how they are funded and whether or not they are really advantageous for veterans.
Today we’re debunking the five common myths about VA loans.
Myth #1 – They are funded by the government: VA loans are not funded by the government. Instead, the U.S. Department of Veterans Affairs guarantees the loans made by private lenders in cases of default. This guarantee gives independent lenders, such as SaveUnited.org, the confidence needed to originate the loans while helping veterans receive favorable terms and lower rates.
Myth #2 – They are not reusable: Actually, a veteran can take out a VA loan on their primary residence as many times as they want. The VA entitlement is reusable as long as the original loan is paid off, such as in a refinance. There are certain circumstances in which a veteran can have two simultaneous VA loans – this typically involves active-duty military who are forced to relocate to a new duty station.
Myth #3 – They come with higher fees: This is partially true. VA loans do come with a VA funding fee, which is typically around 2 percent of the purchase price of the home. This fee can be rolled into the loan amount and can be completely waived in some circumstances. However, VA loans allow buyers to put as little at $0 down without having to pay mortgage insurance premiums, which can save you thousands over the life of the loan. The VA uses that fee to cover mortgages that are in default.
Myth #4 – Veterans are guaranteed approval: This one couldn’t be further from the truth. Homebuyers and homeowners who wish to use a VA loan to purchase or refinance a home must still meet the minimum income and credit qualifications placed by the government. The guaranty that is usually tossed around in VA loan discussions refers the amount of the loan that is backed by the government – typically around 25 percent.
Myth #5 – You can’t get one if you have previously filed for bankruptcy or foreclosure: VA loans tend to be much more forgiving than conventional loans. While conventional loans require a minimum waiting period of 3 years after foreclosure and 2 years after bankruptcy before you can buy again, VA loans offer a shorter bounce back time. VA loans only require a 2-year waiting period for both foreclosure and Chapter 7 bankruptcy. In the case of a Chapter 13 bankruptcy, in which you agree to pay old debts, you can buy again in 12 months in some cases.