For many borrowers who qualify, the VA home loan program is the best option. Learn about how it works and its benefits through this guide.
Purchasing a home is a major undertaking. And if you’re a veteran or currently serving in the military, it can be even more difficult than it is for non-veterans. That is why the U.S. Department of Veterans Affairs (VA) developed the VA loan exclusively for veterans.
Before we get into the specifics, let’s review the top reasons why some veterans prefer this type of loan:
- There is no down payment needed.
- There are no PMI fees.
- You may re-use the loan.
True, those points help to sell the VA mortgage loan. However, it is not all sunshine and rainbows when it comes to understanding what a VA loan is and how it operates.
What Is a Veterans Affairs (VA) Loan?
It is a house loan that is backed by the United States government. Department of Veterans Affairs—but you can obtain one through any lender, such as a bank or mortgage firm. It was created to assist veterans, active-duty service members, and widowed military spouses in purchasing a home in the United States.
In 1944, as part of the GI Bill, the VA mortgage was launched. They are by no means the most prevalent sort of mortgage, accounting for about 5–6% of all mortgages at the start of 2021.1 Those who choose this kind of loan typically do so because they are unable to qualify for a more normal conventional loan.
How Does a VA Home Loan Work?
The VA home loan is a non-traditional (or government-backed) loan. They vary from conventional loans in that they are guaranteed by the federal government.
This simply means that the government promises to reimburse a portion of the debt to the lender that originated in this loan. if you default on your mortgage payments and the lender is forced to reclaim your home (foreclosure).
VA mortgage loans are comparatively easy to obtain due to the lender taking on less risk than with a conventional loan.
Who Is Eligible for a VA Home Loan?
To qualify for this loan when purchasing a home, military personnel must complete particular service standards established by the VA.
In general, you qualify if you fall into one of the following three categories:
- You are an active-duty military member or honorably retired veteran who has served 90 consecutive days in combat or 181 consecutive days in peacetime.
- You have served in the National Guard or the Selected Reserve for more than six years.
- You are the spouse of a service member who was killed in action.2
Applying for a VA Home Loan
To apply for a VA Home loan, you’ll need a Certificate of Eligibility (COE) to verify your eligibility to mortgage lenders. You can obtain a COE online, via mail, or through your lender.
To give you a sense of how this process works, here are the six steps involved in acquiring a VA loan:
- Obtain a certificate of eligibility from the VA
- Obtain preapproval from a lender.
- Start a house search
- Make a proposal
- Attend to the lender’s processing of your loan.
- Close the deal
Take note of how the processes are virtually identical to those involved in any other home-buying process. The primary distinction is obtaining the Certificate of Eligibility.
Is it Possible to Refinance a VA Loan Multiple Times?
Yes, those who qualify for a VA home loan receive a lifetime benefit. No matter how many times you sell and purchase a home, you can still qualify for another VA loan.
The Top Ten Advantages of a VA Home Loan
1. A VA Loan Requires No Down Payment.
To buy a house, most home financing programs need at least a small down payment. The VA home loan is one of the few exceptions.
Rather than paying 5%, 10%, 20%, or more of the home’s purchase price in cash upfront, you can finance up to 100% of the purchase price with a VA loan. V Home loans are true no–money–down option for house financing.
2. VA Loans do not require Mortgage Insurance.
If you make a down payment of less than 20%, most lenders will ask you to pay mortgage insurance. If you failed on your loan, this insurance – known as private mortgage insurance (PMI) for conventional loans and mortgage insurance premium (MIP) for FHA loans – would safeguard the lender.
There is no down payment or mortgage insurance required with a VA loan. As a result, a VA-backed mortgage is both reasonable in the short term and over time.
3. VA Loans are backed by the Government.
There’s a reason why the VA loan has such advantageous conditions. These loans are guaranteed by the federal government, which means that if you can’t make monthly payments for any reason, a portion of the loan will be refunded to the lender. This guarantee encourages and allows private lenders to offer very competitive terms on VA loans.
4. You have the option to look around for the best VA home loan rates.
The Veterans Administration neither originates nor funds VA loans. They aren’t government loans in the traditional sense. Furthermore, the VA does not determine mortgage rates for VA loans. Instead, banks, savings and loan institutions, credit unions, and mortgage lenders in the United States offer VA loans, with each setting its own rates and costs.
This means you can browse around and compare loan offers while still selecting the VA loan that best suits your financial needs.
5. There is no prepayment penalty on VA loans.
A VA loan does not limit your ability to sell the home before the end of the loan term. There are no prepayment penalties or early–exit fees if you sell your house within a certain time frame.
Additionally, there are no restrictions on refinancing your VA loan. You can refinance your existing VA loan into another VA loan or switch to a non–VA loan at any time through the VA’s Interest Rate Reduction Refinance Loan (IRRRL) program.
6. VA home loans come in a variety of shapes and sizes.
A VA loan might have a fixed or adjustable interest rate. A VA loan can also be used to purchase a house, condo, new-built home, mobile home, duplex, or other property. It can also be used to refinance your current mortgage, make home repairs and improvements, or make your home more energy-efficient.
It’s entirely up to you. A VA–approved lender can assist you in making your decision.
7. VA loans are easier to obtain.
VA loans, like all mortgages, require precise documents, a good credit history, and enough income to cover your monthly payments. However, as compared to other loan programs, VA loan standards are more lenient. Because of the VA loan guarantee, this is achievable.
The Department of Veterans Affairs sincerely wants to make buying or refinancing a house easier for military members, veterans, and qualifying military spouses.
8. Closing expenses for VA loans are cheaper.
The VA sets a cap on the number of closing expenses that lenders can charge VA loan applicants. A VA home loan can also be cheaper than other forms of loans in this way. Closing costs are money that can be put towards furniture, relocation charges, house improvements, or anything else.
9. The VA allows for fee flexibility when it comes to funding.
A “funding charge,” an upfront expense based on your loan amount, kind of qualified service, down payment size, and other considerations, is required for VA loans. However, funding fees do not have to be paid in cash. The VA permits the cost to be covered as part of the loan, so there is no cash outlay at closing.
And not all VA borrowers will be able to afford it. Veterans who receive VA disability compensation and unmarried surviving spouses of veterans who died in duty or as a result of a service-connected disability are usually exempt from paying VA financing fees.
10. VA loans can be refinanced.
The majority of VA loans are “assumable,” meaning you can transfer your VA loan to a future home buyer who is also VA–eligible. In a rising mortgage rate environment, assumable loans can be a major benefit when selling your house.
The assumption features of your VA become even more advantageous if your home loan has today’s low rate and market rates rise in the future.
Properties that can be purchased with a VA loan
When it comes to the types of property you can buy with a VA loan, you have a lot of options. It can be used to purchase the following items:
- House in a row
- A newly constructed residence
- A manufactured homes
- Property with a duplex, triplex, or four units
A VA mortgage can also be used to refinance an existing loan for any of those properties.
Ready for Homeownership?
Ready to get started on your path to homeownership? Get preapproved for a mortgage that fits your needs and goals. Brishen Combs, who assists you with loans for veterans or the military, is here to help you with your homeownership journey.