What Are The Real Costs of the VA Loan

I feel pretty confident that many buyers and sellers are misinformed about the VA loan. I mean, this loan really has a bad rap. There is a stigma associated with the loan product that sellers are going to be forced to spend boatloads of money based upon governmental red tape. Even my own grandparents claim they paid several thousand dollars in closing costs when they sold their farm in Crockett, Texas because they were working with a VA loan buyer. Well, things have changed! The VA loan is an amazing product for eligible buyers, and sellers are NOT required to pick up all of the buyer’s closing costs. To get the facts straight, I reached out to a colleague of mine: Brandon Levy with Evolve Bank and Trust. So, what are the real costs of the VA loan? Let’s bust up these myth!

What is the VA loan?

The VA loan helps veterans, eligible spouses of deceased veterans, and servicepeople obtain housing. It is a mortgage loan guaranteed by the department of Veterans Affairs. This loan allows eligible buyers to purchase a home with zero percent down, and zero mortgage insurance. The maximum amount a buyer can borrow in Houston, Texas is 424,100, and there can be a funding fee of up to 3.3%.

Does it take more time close a VA loan?

According to Brandon Levy, a VA loan in his portfolio closes in about the same time as a FHA or conventional loan. I have heard about delays in Houston, Texas from other agents at the ULR office. Marty Ruiz, a ULR agent that specializes with Veteran buyers, says he’s experienced appraisal delays that have resulted in 45 days closes. This isn’t significantly longer than the average closing time in Houston of 30 days. Any loan can experience a week or two delay.

Are the appraisal criteria more strict?

The appraisal process is a bit stricter than for a conventional loan, but no more so than the FHA loan. If a home meets FHA requirements, it should also meet VA requirements. Things that sellers would want to remedy prior to listing the home include exposed wiring, holes in walls, visible mold, roof issues. If the home for sale is a fixer upper, the VA loan may not be the best product. Additionally, VA and FHA appraisers tend to be conservative with their value assessment because these loan products come with a government back assurance. With the VA loan, if there are value issues that cannot be worked out, the buyer can walk away and retain their earnest money.

Is the seller required to pay any of the buyer’s closing costs?

The only item a buyer with a VA loan can NOT pay for is a termite inspection. This can be paid for by the lender, REALTOR® or seller, and is about $100 in Houston, Texas. All other fees related to closing are negotiable and can be paid by the buyer. There used to be a bunch of “junk fees” charged by lenders, but after dealing with red tape, lenders have eliminated those fees from all of their loan products. Sellers can contribute up to 4% of the purchase price towards the buyers closing costs, if negotiated. They are not required to contribute to closing costs, and many times the purchase price of the home is increased to allow for a seller contribution.

Benefits of the VA loan

For the buyer

• Zero down
• No mortgage insurance
• Reusable
• Assumable
• One time funding fee that can be included in the loan
• VA limits closing costs a buyer can pay
• VA allows up to a 4% seller contribution

For the seller

• You cast a much larger net for catching the perfect potential buyer

Don’t let the VA loan scare you! The only extra expense you might have is a $100 termite inspection, and there’s only a 33.33% chance of that happening. If your home is in good, habitable condition and under $424,100, considering buyers using the VA loan product increases your potential buyer pool. Remaining open to offers from as many buyers as possible increases the possibility of your home selling quickly and for top dollar.

Are you ready to buy your first home, or sell your home? Do you have more questions about which loan product is right for you? Comment below or contact me directly at 832-513-9931. You can also reach Brandon Levy to answer your loan questions at 847-858-4378.