VA Loans Make Homeownership Appealing
Oftentimes a VA loan is considered a “fast pass” to homeownership because military veterans don’t have to jump through all the hoops that other homebuyers face.
VA loans are a unique benefit for military veterans. They provide 100 percent financing, so military buyers can get into a home without having to provide a down payment. Since these loans are guaranteed, they offer flexible credit requirements and limited closing fees. Active duty military may also qualify.
Currently, the loan limits for Honolulu County are $721,050, Hawaii County is set at $625,500, Maui and Kalawao are $657,800, and Kauai is $713,000. The loan guarantee limit is determined each year based on sales figures from the Federal Housing Commission.
“The VA limit of $721,050 does not typically discourage a buyer unless they are specifically looking in an area which is above our median home price on Oahu,” explained Lisa Onishi, REALTOR® at Locations LLC, Pearlridge. “The VA limit is pretty generous considering our median priced home on Oahu is still under $700,000.”
The VA loan limit applies to the amount the VA guarantees, but it doesn’t limit the home’s purchase price. “Homes can be financed 100 percent up to county limits, and a down payment of 25 percent of the difference between county limit and purchase price is required for anything higher,” said Onishi.
For example, an $821,050 purchase would require a minimum down payment of $25,000 ($821,050 $721,050 = $100,000 difference X 25 percent = $25,000).
And today’s interest rates are fairly attractive. “The current rates for a 30-year fixed VA loan are between 3.25 percent and 3.75 percent depending on the buyer’s credit score, loan size, and amount buyer is willing to pay for closing costs,” outlined Jay Miller, home loan originator, Compass Home Loans LLC, Honolulu.
It’s also possible to hold two VA loans at the same time. The total of the two loans is limited to the VA loan limit of their county of residence. For example, if an officer owns a home on the mainland with a loan of $200,000, and is then transferred to Hawaii, they can finance a home on Oahu up to $521,000, with 100 percent financing because the two loans will reach the Honolulu county limit of $721,000.
“Because VA is financing with no money down and there is no PMI, there is a one-time funding fee, which the VA charges to guarantee the loan, in case of a default. It’s similar to mortgage insurance on conventional loans,” said Onishi.
“The VA funding fee goes directly to the VA and is added into the purchase price of the home. This fee is determined based upon use, (first time use or second use entitlement) and type of service, active duty military, coast guard, or reserves. If a veteran has a disability rating of 10 percent or more, the funding fee is waived,” Onishi added.
“Typically, for active duty and active duty veterans, the fee is 2.15 percent of the loan amount for first use of the VA loan and 3.3 percent for subsequent uses.[notdef]If they put down 5 percent, the fee drops to 1.5 percent and if they put down 10 percent, it is reduced to 1.25 percent no matter how many times they use the VA loan,” Miller said.
Homebuyers should also be aware that VA loans do not allow veteran buyers to pay for certain fees. “Part of the ‘non-allowables’ include application and assignment fees, notary and tax service fees, closing and settlement fees, document prep and underwriting fees and attorney fees,” Onishi explained. “A VA buyer is not allowed to pay these costs, in most cases, a good VA lender will cover them for you.”
“Although in some cases, VA will provide a waiver to close on a purchase with an unpermitted addition, it isn’t realistic in most cases to ask the seller to have an area permitted after the fact,” said Onishi.
“It’s best for buyers to work with real estate agents who have experience working with the unique features and requirements of VA loans — it saves a significant amount of time. That way the buyer doesn’t end up paying for a home inspection and appraisal (which can cost close to $1,000) just to find out that they cannot proceed.”
No question, the VA loan offers excellent opportunities today.
“It’s a terrific loan right now for any qualified buyer who has less than 25 percent down,” suggested Miller. “But if a buyer is not eligible for VA, then they can get into conventional financing with as little as 3 percent down … the rates are typically higher than the VA loan and there is a separate mortgage insurance payment,” he explained.
To aid in your property search, visit locationsllc.com/buying/hawaii-military-relocation-guide.aspx.