For veterans and active military personnel, VA mortgage loans offer a viable path to affordable homeownership. But before you move forward with purchasing a home, it’s important to understand the concept of property liens and take steps to protect yourself financially. An existing lien on a property could potentially derail your plans. This article will explain what liens are, why they matter for VA loans, and how to protect yourself along the way.
The Basics of Property Liens
Before we proceed, let’s discuss the concept of property liens. Simply put, a lien is a legal claim against a property for an unpaid debt. Understanding liens is crucial as they can impact property ownership, potentially hindering the smooth transfer of title.
The most common liens are:
- Tax liens – unpaid property taxes
- Mechanic’s liens – unpaid work/repairs by a contractor
- HOA liens – unpaid HOA dues
Liens can give the creditor the right to seize or foreclose on the property if the debt remains unpaid.
How Liens Can Complicate the VA Loan Process
It’s crucial to understand any liens against a property before moving forward with a VA mortgage. Existing liens against a property can potentially derail or complicate the VA loan process in a few ways including:
- Increased risk: Lien priority determines the order in which different liens get paid if the property goes into foreclosure. Any liens that take priority over the VA loan itself could result in the VA lender not recouping their investment in the case of foreclosure. This makes existing liens riskier for VA lenders.
- VA loan requirements: VA guidelines limit the types of liens that can remain unpaid on a property for a VA loan. For example, federal tax liens are not permissible. The lender will require any unacceptable existing liens to be paid off before they will proceed with the loan.
- Down payment and interest rate: Even permissible liens can still affect the VA loan terms. The presence of outstanding liens usually means the lender will require a larger down payment from the buyer. Existing liens also impact the loan-to-value ratio, which could result in a higher interest rate.
- Underwriting process: During the process of underwriting the loan, the lender will thoroughly review the title report to identify any existing liens on the property. Any issues will need to be resolved before closing, which can delay the process.
- Closing on the loan: At closing, the title company will again review any outstanding liens and require proper documentation that they have been addressed before issuing a clear title and allowing the sale to proceed. Any last-minute lien surprises could derail closing.
Protecting Yourself as a Borrower
The good news is, there are steps you can take to protect yourself from potential lien-related issues. Seeking professional legal and financial advice is highly recommended to ensure a thorough understanding of any existing liens and their implications.
Reviewing loan documents thoroughly is another essential aspect of safeguarding your interests. Our team will ensure that all necessary documents are transparent and easy to comprehend, allowing you to make informed decisions.
Get Assistance from a VA Loan Expert
Have questions about property liens for VA mortgage loans? Contact us today to get personalized assistance. Together, we can make your homeownership dreams a reality!