Debunked: 8 VA Loan Myths, Misconceptions and Misunderstandings

Marcus Marion, CMA™ 1 month ago 0 16

The VA loan program offers many excellent benefits for military members and veterans who are buying or refinancing a home. Unfortunately, however, surveys have shown there are many misconceptions about VA loans that might discourage borrowers from using the program.

Today, we will “debunk” 10 of the most common myths, misconceptions and misunderstandings relating to VA home loans.

Top 8 VA Loan Myths and the Truth Behind Them

I need to have great credit to qualify for a VA loan. They take a really long time to close. They can only be used once. VA loans are risky for sellers. Those are just a few of the common misconceptions we’ll be dispelling here today. So let’s get started…

Myth #1: VA loans are only for veterans who’ve served in combat.

You do not have to be a combat veteran to qualify for a VA loan. This program is extended to active-duty service members, National Guard, reservists, and veterans who meet certain time-in-service criteria. Combat service is not a prerequisite for the VA home loan program.

Myth #2: They take a lot longer to close than regular mortgages.

On average, VA loans do take a few days longer to reach closing, when compared to traditional / conventional mortgage loans. But the difference is so small that it’s hardly worth mentioning.

And when you consider the fact that borrowers using a VA loan can avoid making a down payment, a difference of a few days becomes even less of an issue.

More importantly, data have shown that VA loans have a higher closing success rate than conventional mortgage financing. This means that home buyers using the VA loan program are more likely to reach the finish line and receive funding. And that’s good for all parties involved, including the buyer and seller alike.

As a borrower, you can help keep the process on track by providing documents in a timely fashion and staying in touch with your mortgage broker or loan officer throughout the process.

Myth #3: VA loans have restrictive property requirements.

The Department of Veterans Affairs maintains a set of minimum property requirements or MPRs for homes purchased with a VA loan. But most of these requirements have to do with basic health and safety issues. They’re not nearly as strict as some people think.

With that being said, you probably shouldn’t attempt to use a VA loan if you’re interested in buying a fixer-upper type of property. This loan program is primarily designed for homes that are move-in ready and do not require extensive repairs to make them habitable.

Myth #4: I can only use this benefit once.

Your VA home loan benefit is not a one-and-done type of situation. In fact, you could use this program over and over throughout the years, as long as you continue to meet the basic eligibility requirements.

If you use a VA loan to buy a house, and later sell the home and pay off the mortgage debt, you will restore your “entitlement” in the program. This means you could use the program to buy another house down the road, without having to make a down payment.

This program has a lot of repeat users, due to the many benefits it provides.

Myth #5: The VA loans money directly to borrowers.

While they are backed by the federal government, VA home loans are actually issued by mortgage lenders in the private sector. So in this regard, they are similar to other types of mortgage loans including conventional and FHA.

The Department of Veterans Affairs gives mortgage lenders who participate in this program a partial guarantee against losses stemming from borrower default. This means lenders can recoup some of their losses if the borrower fails to repay the loan. This added layer of protection allows lenders to offer very flexible qualification criteria.

But the actual funding comes from the lender, not from the government.

Myth #6: VA loans cannot be used for investment properties.

Most people who use a VA loan to purchase a home end up buying a single-family property that serves as their primary residence. But in certain scenarios, home buyers can use a VA loan to purchase a multifamily investment property.

The caveat here is that one of the units must serve as your primary residence. For example, a borrower could use a VA loan to purchase a duplex or triplex property, reside in one of the units, and rent out the other unit(s).

This is a popular strategy among some home buyers, because it allows you to earn an income from the property you are purchasing.

Myth #7: I need to have excellent credit to qualify.

This is another damaging misconception that prevents some borrowers from applying for a VA loan, even when they’re an excellent candidate for the program. So let’s debunk this myth once and for all.

The truth is the VA home loan program has some of the most flexible and “forgiving” credit score requirements of any type of loan. The Department of Veterans Affairs doesn’t even require a minimum credit score. They leave it up to the mortgage lender.

And because of the federal guarantee mentioned earlier, lenders tend to be very flexible when it comes to credit scores for VA loan borrowers.

According to an article published a few years ago on the VA.gov website:

“VA Loans are more lenient than conventional when it comes to your credit history. In fact, VA has no credit limit, though it is true that VA lenders generally look for a 620 FICO score, which, in layman’s terms means “Fair” credit (followed by “Good” and then “Excellent”). Conventional loans often require a 660 minimum credit score, although you may need more like a 740 to have a shot at the best rates and terms.”

If you have sufficient income and a manageable level of debt, you could potentially qualify for a VA loan even if you’ve had credit related issues in the past.

Myth #8: VA loans are “risky” for sellers.

Last but not least, we come to one of the most unfortunate myths and misconceptions about VA loans. And this one goes back decades. The misconception here is that VA loans are more likely to “fall through” when compared to conventional financing, because of the property requirements mentioned above.

But, as we’ve discussed, VA loans actually have a higher closing success rate when compared to other types of mortgages. Sellers should consider this when reviewing offers from home buyers who are using VA loans.

The Department of Veterans Affairs does not require a comprehensive home inspection. But they do require an appraisal, which has a basic inspection component built into it. The appraiser must ensure that the property will not pose any health or safety issues for the new occupant.

Granted, if you’re selling a home that needs a ton of work, you probably won’t be able to sell it to a borrower with a VA loan. But if your home is in decent condition overall, a VA loan should not create any additional headaches or hurdles.

Sellers can also take pride in the fact they are transferring their home to a deserving buyer who has served their country in the past, or is currently serving!

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