Military veterans are buying homes in record numbers, but many are still unsure about how the loan process works and the purchasing power it gives them, according to a recent survey of 1,001 veterans.
Last year, VA processed 410,000 mortgage loans, smashing the previous record set at the end of World War II. This year is only slightly off that pace, even with higher interest rates. But understanding the process can still be tough.
"The goal of the VA loan process is to put eligible veterans, military members and spouses into a home," said Justin Coats, regional mortgage operations manager for BOK Financial Mortgage®.
"A lot of the work we do is educating the borrower so that they understand what that process entails."
The U.S. Department of Veterans Affairs Veteran's Administration has guaranteed more than 28 million VA home loans, with 3.7 million active home loans in the program. Coats outlined some of the most common misconceptions about the VA loan process:
Myth 1: You must put down 20% of the home value.
Why it's false: Only one in three survey respondents knew that down payments are not required for VA loans. About half believe they must put down 20%, and 37% of respondents believe a 30% or more down payment is required.
In reality, a VA loan allows active-duty service members, veterans and eligible surviving spouses to finance a home with no down payment, no mortgage insurance and typically more lenient credit requirements.
"There is such misinformation out there about entitlement calculations and the veteran's purchasing power, so it's best to consult with an experienced mortgage consultant," Coats said.
Note: VA loans come with a VA funding fee to process the loan, Coats said. The fee is 2.15% for the first time a borrower uses the loan, which can be paid up front or amortized over the length of the loan. The lending fee rises to 3.3% for borrowers using the loan a second time.
Myth 2: There's a limit to how much I can borrow.
Why it's false: The VA recently removed the entitlement limits placed on VA loans. Now, first-time home buyers are eligible to borrow the amount set within the limits of their lender. If you're using the loan for the second time, as long as you sell the first home you bought with the VA loan, your entitlement will be restored.
"The VA benefit is not structured for a borrower to obtain a real estate portfolio," Coats said.
This calculator can help determine the amount that might be available to a veteran borrower.
Myth 3: You can only use a VA loan once.
Why it's false: The survey found that about half of active-duty military and 31% of veterans believe they can only use a VA loan once. Not true—borrowers can use the VA loan as many times as they'd like, but there are caveats. For example, a veteran can only have up to two active VA loans at one time.
Myth 4: If I'm rejected by one lender, I will be rejected by them all.
Why it's false: "One of the most misunderstood points about the VA loan process is that if you're denied by one lender, you can't get a loan—and that's just not true," Coats said.
In some cases, lenders might have more stringent criteria for borrowers, but it might not be the same across the board. Borrowers should talk to another lender that may have different requirements, he said. If you're still denied, there might be other options.
"In most cases, the VA considers re-established credit after 12 months, so it's important to learn why you were denied so you're able to fix it," Coats said.
Myth 5: VA loans have higher interest rates.
Why it's false: The survey also showed that half of active-duty military and 22% of veterans believe VA loans carry higher interest rates than conventional loans do. The kinds of things that can affect interest rates are credit scores, debt-to-income ratios, the Federal Reserve's monetary policy and the state of the bond and housing markets.
Myth 6: Home inspections are mandatory with a VA loan.
Why it's false: "Home inspections are not required, but they are recommended—especially for first-time buyers," Coats said. There's nothing in the VA loan paperwork that requires a home inspection, but in many instances, the home inspection becomes an important way to protect borrowers. As a first-time homebuyer, it's a good exercise for understanding home maintenance and repairs, he said. "More seasoned homebuyers might better grasp what's needed without an inspection."
Myth No. 7: You must have a high credit score.
Why it's false: "Traditional loans are very credit- score driven, while VA loans rely on additional factors to determine a borrower's eligibility," Coats said. "The bottom line is: Don't give up if your credit score is less than ideal."
Myth 8: The appraisal process on a VA loan takes forever.
Why it's false: The notion that the VA appraisal process takes longer than a traditional loan is by and large false, Coats said. If your property is in an urban or suburban area, there's plenty of VA appraisal coverage, but more rural areas tend to have fewer people who can legally provide that service. This can mean longer wait times, but it's not because of the VA loan process. In fact, the requirement for a VA loan appraisal is 10 days.
Learn about our VA loan program here.