How To Get A VA Loan in Michigan
If you are currently serving in the military or you are a veteran, you could be eligible for a VA loan to help you purchase a home in Michigan. The VA loan offers many advantages to help current and former service members purchase a home with better terms.
The Benefits of Choosing a Michigan VA Loan
We take a look at the things you need to know about a VA loan when buying a home in Michigan.
No Down Payment
Having to save money or a down payment can delay buying a home, but with a VA loan, you can avoid this wait. You might be expected to have at least a 3% down payment for a conventional loan or 3.5% with an FHA loan, but a VA-backed mortgage offers the advantage of no down payment.
While you will be expected to have a good credit score and history when applying for a conventional loan, the VA guidelines are more relaxed.
The program is designed to make it easier for veterans to purchase a home, and the VA loan guidelines reflect that aim.
Limited Closing Costs
When you close on your new home, you must pay fees to the real estate agent, home inspector, appraiser, lender, and title company. These costs can come to a significant amount of money, but the VA guidelines limit some of these expenses.
No Private Monthly Mortgage Insurance Premiums
When you purchase a home with less than a 20% down payment, you are usually expected to pay private mortgage insurance (PMI). These premiums protect the lender should you fail to stick to your payment schedule and default.
However, while mortgage insurance is not required, you will have to pay a funding fee. There are some exemptions for certain veterans, but otherwise, you will be charged 2.15% of the loan amount for the first VA loan. For subsequent VA loans, the charge increases to 3.3%. These are the highest amounts you will pay, with the funding fee reduced for down payments above 5% and again for down payments above 10%.
The funding fee can be added to the loan amount and financed, so you don’t have to worry about paying this cost at closing.
Competitive Interest Rates
Interest rates available tend to be very competitive when compared to conventional and FHA loans. Since the VA guarantees a portion of the loan, authorized private lenders can offer competitive loan rates on their loans.
No Penalty Early Payoff
If you want to sell a home after only a few years, you could have to pay a penalty to your current lender. However, when you have a VA loan you won’t have to pay a penalty for early payoff. So, if you inherit some money and decide to use it to pay off your home loan, you won’t be penalized for doing this.
No Maximum VA Loan Limits
There isn’t a set maximum loan amount allowable through the VA program for applicants with their full VA loan entitlement. It will be up to the lender to determine how much you can borrow and afford. However, there is a limit for applicants with reduced VA entitlement.
If you already have a VA home loan, it is possible to get a second loan with your second-tier entitlement. This entitlement can also make it easier to buy a home after a default.
To qualify, a borrower has to be current on their payments for the first loan. They also cannot have any missed payments in the last 12 months.
The lender also needs to see that there is a good reason for the family to buy a second home. This entitlement can help when there is a Permanent Change of Station or a change in family circumstances. While this entitlement isn’t intended to be used for borrowers to purchase a rental property, the first property can be rented out and the proceeds used to improve the applicant’s debt-to-income ratio.
The VA guarantees a quarter of the loan, this guarantee amount comes out of your entitlement. In Michigan, there is a primary entitlement of $36,000 and a secondary entitlement of $145,550, giving a total entitlement of $181,550. If you want a second VA mortgage, you need to check how much entitlement you have remaining after your first home loan.
Qualify for a VA Mortgage in Michigan
To qualify for a VA loan you have to be eligible based on your service. The Department of Veteran Affairs includes length of service requirements with active duty normally needing less than the National Guard or Army Reserve. VA loan eligibility includes the following groups:
- Anyone currently serving in the Air Force, Army, Navy, Marines, or Coast Guard
- Someone who has been honorably discharged from military service
- A surviving spouse of a veteran
- Cadets and midshipmen enrolled in military academies
Certificate of Eligibility
A certificate of eligibility or COE, is required before you can apply for a VA home loan. This certificate states your entitlement for a VA loan and can be obtained by your lender or by you through the Veterans portal.
The certificate will state the length of military service, and if you meet the minimum requirements, you’ll be eligible for a VA loan. The requirement includes a minimum of 90 consecutive days during wartime, 181 days during peacetime, or 6 years in the National Guard or reserves.
If you meet the service eligibility requirements, DD Form 214 Certificate of Release or Discharge from Active Duty can be used by a lender to apply for your COE. Even with a COE, you will still need to be approved for the loan from the lender.
The lender wants to make sure that you have enough income to pay the loan when other debts are considered. They will look at your income and debts when the proposed mortgage payments are included and generally do not want to see your debts consuming more than 41% of your income.
For example, if your income before taxes is $75,000, your gross monthly income would be $6,250. If your debts and mortgage payments come to more than $2,562.50 per month which is 41% of your gross income, you might have a problem getting the mortgage you want.
Your mortgage company might still be able to help if your debts are slightly higher than 41% of your gross income. But you could also try to renegotiate the price with the seller, deal with your debts before applying, or consider a cheaper home.
Residual Income Calculation
When underwriting the loan, the VA wants to ensure that the buyer isn’t taking on too much debt. To ensure the borrower does not suffer financial hardship, a residual income calculation will make sure that there is enough money left over after paying debts and utilities each month.
The underwriter will consider your location in Michigan as well as the size of your family in their calculation. This extra step is one of the reasons why VA loan foreclosures are relatively rare compared to other types of mortgages.
VA Minimum Property Requirements
Along with you meeting the VA requirements, the home you want to buy has to meet some as well. The VA minimum property requirements mean that the home has to be worth the price being paid, and it has to be in a good enough condition to live in.
An appraiser will check that the home meets the VA minimum property requirements. The appraiser will be looking for problems in the home that could make living there difficult or uncomfortable.
Some of the things the appraisal looks at include:
- The roof. Damage to the roof could lead to flooding within the home and serious repair bills.
- The appraiser will ensure that the heat available in the home is good enough for the Michigan winter.
- Broken windows or cracks in the glass could increase heating costs or make the home more likely to be targeted by criminals.
- There needs to be sufficient ventilation in the basement, crawl spaces, and attic, to ensure these areas don’t suffer from excess moisture.
- The home has to have a working sewage disposal system and the facilities have to be sanitary.
- The home should have access to electricity, water, and sewage that is separate from other homes.
- There must be access from a public road to the home that can be used all year round.
- Living space. There should be enough room in the home for living, sleeping, cooking, and dining that will suit the homeowner and their family.
These checks should ensure that the home is safe for the veteran to live in. It also helps the lender and means that there is less risk of them losing money should foreclosure take place.
If there are some problems with the home, the seller will have to deal with these issues for the sale to continue.
Summing up How VA Loans Work in Michigan
If you are eligible for the VA program, taking advantage of this benefit will make buying a home easier. You could do without the need to save a down payment and still take advantage of competitive mortgage rates and lower credit requirements.