(This is the second in a series of articles dealing with our returning military and the VA loan program available to them. Please refer first to Part I: “Veterans are coming home but to what kind of housing market?” and Part III: “Is the VA loan program appropriate for our Vets?”.)
There can be a tendency to blindly assume that because the loan program includes the word “Veteran” and is administered by a U.S. governmental agency, that it is appropriate for everyone who is eligible. Instead, any borrower purchasing a home needs to use sober judgment and look past just “getting in” to a home to the realities of “staying in” their home in the future. We want our returning heroes to be blessed by owning their homes and not end up having their homes own them.
What the mistakes of the past decade should teach all of us, military or otherwise, is to use any financing prudently. That means things like having a budget, doing some long-range financial planning, seeking out professional financial advice, and carefully weighing all the options before jumping in to a mortgage and the real estate market.
There are a few misconceptions that people have about the VA loan program. First, this is not a loan from the government; the government guarantees the loan; but the loan is actually made by the same types of lenders making conventional mortgage loans: banks, savings and loans, thrifts, credit unions and national mortgage banking firms. The guarantee is what induces these lenders to make these higher risk loans.
Another misconception is that (unlike other insured low-money down loan programs) the government is guaranteeing the VA loan at no cost to the veteran as a “thank you” for having served our country. While there is no monthly mortgage insurance payment (a plus for this program), the cost of the guarantee is borne alternatively by charging the borrower an up-front “VA Funding Fee”.
The VA funding fee is substantial and it is typically added to the loan balance and financed. So while it does not show up separately, you actually are paying a monthly cost inside the mortgage payment. That being said, a VA transaction used to compare reasonably well with other approaches as far as monthly housing costs go; but that too is changing.
There are so many recent changes occurring in mortgage loan programs that even closer scrutiny is now required to find the path that’s right for you. For all intents and purposes, the government now controls all the programs on the market: Fannie, Freddie, FHA, VA and Rural Development are all government controlled and regulated.
Fee structures have been or are changing in all of the primary mortgage programs. FHA changes will go into effect on October 4th(look for the article coming on those changes). More details on VA loans are to be found in the final installment in this series entitled: Part III: “Is the VA loan program appropriate for our Vets?”