Purchasing a home without the need to use your own cash out of pocket is highly unusual in today’s mortgage industry. In fact, over the past few years, many lenders have required larger down payments from home buyers. A VA loan is different in that it allows eligible borrowers to make a home purchase without the usual required down payment. However, there are closing costs involved in any mortgage, but home buyers will find that there are 3 ways to achieve a 100% VA purchase.
1. Seller Concessions
A seller concession is “anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide”, according to the VA. Seller concessions are unique because they do not include any payments made to the home buyer’s closing costs. They are actually in addition to seller paid closing costs.
Seller concessions cannot exceed 4% of the sales prices and can be made for the following (not limited to) which can lead to a 100% VA purchase:
– home buyer’s VA funding fee
– prepayment of the home buyer’s property taxes and insurance (commonly called escrow setup)
– payment for extra points to provide the buyer with a permanent interest rate buy-down
– provision of escrowed funds to provide temporary interest rate buy-downs
– payoff of buyer’s credit balances or judgments
2. Seller Paid Closing Costs
In addition to seller concessions, sellers can pay for all or part of the buyer’s closing costs in order to achieve a 100% VA purchase. VA loans do not set a maximum cap which allows a seller to pay for all of these expenses. In fact, with a VA loan, home buyers are protected from unnecessary expenses and cannot pay for the termite inspection/report which must be paid by the seller. A seller can also pay for:
– Credit report
– VA appraisal
– Recording fees
– Title fees
– State and local taxes
– Lender fees (if any)
– Customary market discount point
3. Lender Credits
A lender credit means that the lender will pay some or all closing costs. This is done choosing a slightly higher interest rate in exchange for this upfront credit towards costs. Lender credits are not subject to or included in the 4% cap and, therefore, can increase total paid costs on ones behalf even higher . Lender credits can be applied towards most costs associated in a loan. A knowledgeable lender can help calculate which options are most efficient for your particular scenario and goals.
With all of these options, either separately or combined, a home buyer can actually make a 100% VA purchase. This is something that cannot be done with other types of mortgages. In order to achieve a 100% VA purchase, an experienced lender who knows how this can be accomplished should be contacted.
Feel free at any time to contact me for more information about a VA loan and how you can achieve a 100% VA purchase.
My loan process was very easy and quick. Not to mention a great loan rate. I couldn't be happier!
Capt Sam T. - US Army
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