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Why more veterans are using VA loans to buy homes

Many borrowers finance the fee. "The only real downside I see is the funding fee," said Craig Fauver, a Virginia-based real estate agent. "Putting no money down, plus adding on the funding fee, you are immediately underwater. You're starting at 102 or 103 ...

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A VA loan proved the most affordable way for Pearson to buy his homeBecause of that affordability, a record number of veterans and service members are taking advantage of the loan programThe 740,000 VA loans last year were the most in a single year, and up more than 300,000 from three years ago. dhGlobalObj.showArticleBodyAd( 1 ); The low interest rate is the biggest reason why many veterans and service members are using the programVA loans have had the lowest average interest rate on the market for the past 41 months, according to Ellie MaeAs of September, the average interest rate for a 30-year fixed VA loan was 3.99 percentIt was 4.26 percent for a conventional loan. The VA home loan benefit was part of the original GI bill in 1944Not only did Congress want to help veterans obtain an education, it wanted to help them buy a home. "It gave millions of Americans who served in World War II the opportunity to build wealth and realize the dream of homeownership," said Jeff London, director of the loan guarantee service at the VA"A lot of historians credit the GI bill for the economic boom, not only from the education standpoint, but also from the wealth-building and the building of America when it comes to homeownership." - Washington Post Graphic Veterans have long had some of the highest rates of homeownership among all segments of societyTheir homeownership rate is close to 80 percent, compared with 64 percent for the general population. dhGlobalObj.showArticleBodyAd( 2 ); "People talk about this idea that homeownership seems to mean more to many veterans and military families," said Chris Birk, director of education at Veterans United"Many see it as owning a piece of the American dream that they vowed to defend." To be eligible for a VA loan, a military member must serve 90 consecutive days on active duty during wartime, or 181 days during peacetime, or six years in the guard or reservesSome veterans are under the misunderstanding that they must use the benefit immediately or lose it, or that if they used it once, they can't use it again. "In the past, many veterans believed that this is a one-time benefit," London said"That's not the caseThis is a lifetime benefit." Besides the low interest rate, another big advantage is that a down payment is not requiredAs long as a veteran has his full VA loan entitlement and remains below the loan limit, he does not have to put money downThe limit is $424,100 for most countiesIn more expensive markets, it is $636,150A veteran can borrow above that amount but would need to put money down. Say that a veteran wants to buy an $800,000 house in Loudoun County, which is considered one of the high-cost marketsFor a conventional loan, he might be required to put down 20 percent, or $160,000But with a VA loan, he would need to put down $41,000He wouldn't pay mortgage insurance and would probably get a better interest rate. dhGlobalObj.showArticleBodyAd( 3 ); Although a veteran doesn't pay mortgage insurance, he is required to pay a VA funding fee, which is typically 2.15 percent of the loan amountMany borrowers finance the fee. "The only real downside I see is the funding fee," said Craig Fauver, a Virginia-based real estate agent"Putting no money down, plus adding on the funding fee, you are immediately underwaterYou're starting at 102 or 103 percent of your value." VA loans tend to work best with single-family homes in suburban or rural areasThey are more difficult to obtain in urban markets, where entry-level housing tends to be a condo or co-opThe VA doesn't guarantee loans for co-ops, and condos must have VA approval. The uptick in VA loans has come despite the program's reputationMany veterans shied away from it because they thought it wasn't worth the hassles or headaches. "Unfortunately, in the past, if a veteran or service member wanted to utilize the VA benefit, sometimes lenders or Realtors would steer them away from the program because there was a notion that VA is too hard to work with, there is a lot of red tape," London said"We've spent a lot of time, effort and resources to get the word out about the program." dhGlobalObj.showArticleBodyAd( 4 ); The biggest complaints about the program involve the appraisal processOnly VA-approved appraisers inspect the homes to make sure they meet minimum property requirements and are "safe, sound and sanitary." VA appraisers tend to have stricter standards than a typical home appraiser, and that makes buying a fixer-upper with a VA loan almost impossible. "I generally steer people away from fixer-uppers with a VA loan," Fauver said. Marrio Pearson, who served in the Army from 1990 to 1999, tinkers with motion lights to be installed at his row house in Washington, D.C., on October 31, 2016. - Washington Post photo by Jahi Chikwendiu. The first house Pearson wanted failed the VA inspection because it need too much workWhen he finally found the home he bought, the closing was delayed because of the inspection. "The longest part of the process was waiting for the VA inspector to come out and reinspect," Pearson said"There are not that many VA inspectors." Delays in the appraisal process are one reason why VA loans take longer to closeThe average closing period for a VA loan is 46 daysIt is 43 days for a conventional loan. dhGlobalObj.showArticleBodyAd( 5 ); VA loans have come under scrutiny by the Consumer Financial Protection BureauFrom 2012 to 2016, the CFPB received more than 12,500 mortgage complaints from service members, veterans and their familiesMost of them were related to refinancing. "What some lenders have done is, they have aggressively marketed to veterans and service members," London said"A lot of those complaints centered around those [marketing] materialsSome of those materials might have promised teaser rates, and veterans who did get those loans maybe didn't have a full understanding of the type of loan they were getting." The idea of a no-down-payment loan brings back the horrors of the recent housing crashAbout 80 percent of VA loan borrowers do not put down money when buying a houseBut less than 1 percent of VA loans were in foreclosure as of June, according to the Mortgage Bankers Association's National Delinquency SurveyVA loans have had the lowest foreclosure rate on the market for the past 18 quarters. "There's a lot of myth and misconception surrounding the program, especially given the no-down-payment benefit," Birk said"But it's actually emerged as a model of stability." The VA does not provide money for the loanUnlike an FHA loan, for which the government guarantees the entire loan, the VA guarantees about a quarter of the loan in most cases. dhGlobalObj.showArticleBodyAd( 6 ); Pearson is thrilled with his new homeHis mortgage payment is about $100 more than what he previously paid in rentAnd best of all for the Washington Nationals season ticket holder, it is close to the stadium. "I ended up finding a place in Southeast," he said"It met my requirements of being able to ride my bike to the baseball stadiumIt was less than a mile to a Metro stationThe neighborhood had a lot of potentialThe only thing I didn't get was a garage." Pearson pays extra on his mortgage each month and rents out his basement on Airbnb. "I'm trying not to be in debt for the rest of my life," he said. When he finally signed the papers at closing a little more than a year ago, Pearson says, he became emotional at the thought of being a homeownerHis tears of joy continue today. "Sometimes I go home," he said, "and I cry again, because it's my home." #article_video {width:100%;margin:25px 0;max-width:576px;overflow:hidden;} try { _402_Show(); } catch(e) {} Tweet !function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);;js.src=p+'://';fjs.parentNode.insertBefore(js,fjs);}}(document, 'script', 'twitter-wjs'); --> This article filed under: Business Finance Mortgages Residential Real Estate Washington Post dhGlobalObj.showAd( { 'sizes':[ 300, 250 ], 'pos':'btf', 'module':'article-end' } ); Article Comments () Guidelines: Keep it civil and on topic; no profanity, vulgarity, slurs or personal attacksPeople who harass others or joke about tragedies will be blocked If a comment violates these standards or our terms of service, click the X in the upper right corner of the comment boxTo find our more, read our FAQ. dhGlobalObj.showAd( { 'slug':'Billboard1' } ); dhGlobalObj.showAd( { 'slug':'ArticleTower' } ); dhGlobalObj.showAd( { 'slug':'Sticky' } ); dhGlobalObj.showAd( { 'slug':'Leaderboard2' } ); News Sports Business Entertainment Lifestyle Opinion Follow Us Facebook Twitter Google+ Pinterest LinkedIn YouTube About Us Subscribe | Customer Services | Feedback | Advertise | Jobs at Daily Herald | Terms of Service | Privacy Policy |

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