I thought that I didn’t NEED a down payment?
VA Mortgages & 100% Financing
VA Home Loans – A Great Option for Many Home Buyers
Understanding ALL the details of financing a home can be a daunting task. Advertising seems to convey one thing and then when you talk to your real estate agent you hear other bits of the puzzle, only to be more confused when you finally speak to a loan officer. The basics are the same across the country, but there are some nuances about the loans that work a bit differently in many parts of the country. Shopping for a home and then putting your offer in with VA financing is not always 100% easy. In The Hudson Valley a seller will insist on cash – a down payment – at the signing of contracts. The confusion begins.
While the bank may not require a down payment, the seller can insist. The first thing to know about a VA Mortgage is that you still need some cash in the bank. Maybe not much, but you have to convince the sellers that you are going to get to the closing table.You will need to go to contract with the sellers of the home, and to do so you must show that you are a serious buyer. So while the VA Mortgage claims that it has 100% financing, the sellers will still want a down payment to take their home off the market and go to contract.
Cash at the signing of contracts says just that. This way you are obligated to purchase the home as long as everything else in the contracts checks out. What you can’t do is just change your mind. You can’t just decide to start shopping for another home, or move to another town or wait another six months. You are invested in the deal with contracts and money on the table so that you are obligated in good faith to go forward. No cash on the signing of contracts means you have nothing much to lose if you “change your mind”. Most sellers of a home, with advice of their attorney, are not willing to accept anything less.
So how does 100% financing actually happen? If the bank agrees, the money from the down payment comes back to you at closing. When I discuss the 100% financing with buyers I always make sure that they understand the details so that they can plan. The money used at the signing of contracts or what is considered down payment money, can be used at the closing table for their closing costs. Since NY State has a good amount of expenses at closing many buyers want to put those costs back into the mortgage. If a buyer qualifies, per the bank, then they can add those costs back into the loan. That is entirely up to the bank to determine. Not all buyers qualify for more than 100% financing. Total purchase price of home PLUS closing costs will equal more than the price of the home. In order for that loan to close that house will need to appraise higher than the purchase price, and another blog post for another day.
The process of applying for a VA mortgage can take a bit longer than a conventional mortgage and may possibly have additional requirements. The minimum of 41% debt-to-income ratios have been used in the past, but is subject to change. Lower credit scores are sometimes part of the equation, making it great for buyers. The best feature that encourages many to use this product is that there is no PMI – Private Mortgage Insurance to deal with. This is a huge feature that saves the buyer a ton of money over many years. This makes the loan very attraction for someone with little cash.
Knowing what mortgage product is the best available for you, and how they all work is an important part of getting ready to buy a home. Even if you are eligible for a VA mortgage as you are currently serving or have recently served, it is still very important to check in with a bank that handles VA mortgages. I always tell clients that a bank that has a local rep is best so that you can speak with a real live human as necessary during the process. I know that customer service is an important factor when buying a home, and I want my clients to find the best source for their mortgage. Local seems to provide the best customer service.
While the choices of what mortgage to use are entirely up to the buyers it does take a bit of time to research out your best options. Never assume that one product is better than another. Things change and in the banking industry that remains a current theme. Check out all your options and speak with more than one lending institution to find out how best that bank can work for you. Interest rates are not the only factor.
More information can be found about the following types of mortgages:
Is a VA Mortgage 100% Financing?
This article is an overview of the current information on available VA mortgage loans. It is advised that when seeking information that any buyer of real estate consult with their bank/mortgage loan officer, attorney and their accountant before making any financial decisions. The information provided is merely a brief introduction for clients to understand the need to begin the pre-qual process. Knowledge is power and when buying a home it is important to have an entire team of professionals on your side. Talking to a loan officer will provide more details and get you started.