Anyway, that’s all water under the bridge now. I’m telling you this because I want to make it clear that I’m very familiar with the VA loan, not just as a team member at Quicken Loans, but as a veteran that has used the benefit several times. And I learned a few things along the way. Here are some of them.
What Role Does the Department of Veterans Affairs (VA) Play in VA Loans?
Let’s start at the top. When did the VA loan begin and why? To answer that question, check out this video. This is from a Google+ Hangout about the VA loan that I hosted last year. One of the guests was John Bell, of the VA, a foremost expert on the VA loan. Here he explains the history and most basic aspects of the VA loan.
One main thing I learned once I got my first VA loan was that the VA doesn’t actually fund VA loans; they only insure them for lenders who sell VA loans, just like any other mortgage. I was also under the impression that the VA would check the loans and make sure there was no funny stuff going on from the lender, that the mortgage rate was what it should be and that there were no unnecessary fees being charged on the loan. In other words, I thought the VA would safeguard me from getting ripped off by a disreputable lender.
Unfortunately, that’s not the case. The VA does do some random quality control on loans once they close, but it’s definitely up to the borrower to make sure they’re working with an honest and fair mortgage company. Just like any other loan, veterans should compare mortgage rates and fees, read reviews of the mortgage company and work with lenders that are recommended by family and friends.
The VA Does Not Set Mortgage Rates on VA Loans
Mortgage rates on VA loans are set by financial markets and lenders, not by the VA. Again, as I mentioned above, although the VA insures the loan and makes it easy for veterans to qualify for a mortgage, it doesn’t have anything to do with mortgage rates and won’t be able to help a veteran who unknowingly agrees to a rate much higher than current market rates. I got my first VA loan assuming that the VA was protecting me, and thankfully I didn’t get ripped off. So my advice is to make sure you’re getting the best rate possible. Compare Good Faith Estimates (GFEs) from several lenders and check for discount points charged for the offered rate. Need a brush-up on understanding a GFE? Check out this video.
The VA Charges a Funding Fee
The VA loan is a great benefit. I believe that wholeheartedly. That said, veterans should understand that they’ll have to pay what the VA calls a “funding fee,” and it can be costly. Funding fees are usually around 2% of the value of the loan, but they can range anywhere from 0–3.3%. So, on a $200,000 mortgage, the funding fee would average around $4,000. That’s a big chunk of change. In almost all cases, the funding fee can be rolled into the loan, but the option to pay it in cash is available should a borrower want to do that.
Here’s what I learned when I got my first VA loan: Any veteran with a service-related disability recognized by the VA is exempt from paying the funding fee. I injured my hand during my time in service and I have a 10% VA-certified disability. Because of that, I’ve been able to waive my funding fee on each of my VA loans. (You’re also exempt as an eligible surviving spouse or active-duty Purple Heart recipient.) I figure that the waiver has saved me well over $6,000, which puts a smile on my face. Finally, one last bit of good news regarding the funding fee is that it may be tax deductible. Check with your tax advisor to see if you qualify.
Know As Much As You Can About the VA Loan Before You Start the Mortgage Process
The more you know, the better off you’ll be when you’re ready to refinance your home or buy a house with a VA loan. I hope the information I shared today was helpful. If you’d like to learn more about VA loans, you can check out these resources:
If you still have questions, leave them below. We will answer them. From one veteran to another, you have my word on that.
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