Since 1944, the VA Loan program has allowed about 20 million veterans to become homeowners by providing financing for eligible active duty and veteran personnel as well as their spouses.
The loans are offered by private lenders and are guaranteed by the Veteran’s Administration. This is a great way for military borrowers to achieve financing of up to $417,000 of their loan. Yes, some fees and closing costs will apply, but borrowers can obtain a competitive loan without putting any money down while not having to pay private mortgage insurance (PMI).
Unfortunately, 20 percent of veterans don’t even realize the program exists.
This guide will provide past and present military personnel an overview of the options available to them as part of the VA Loan program.
What is a VA Loan?
Contrary to popular belief, a VA loan is not one that’s made directly by the federal government or the VA (Veteran’s Administration). It’s a loan made by a conventional mortgage lender and guaranteed by the federal government. If you are a qualified applicant, locate a house and make arrangements for a VA loan through your lender, the property will be appraised by the VA to ensure it is safe and is a good value. If the inspection passes, the VA will guarantee the lender against loss of principal in the event you as the buyer defaults.
The max VA Loan amount will vary depending on the county you are in.
Under the VA loan, you are not required to make a down payment and do not have to pay PMI like other home buyers do when they put down less than 20 percent. But you do have to pay a VA funding fee at 0-3.15% of the loan. However, you could get a loan for up to 103.5% financing, which eliminates the funding fee.
Why are so few people taking advantage of VA Loans?
Many people simply don’t know the VA loan is available to them. Education and awareness is becoming a priority for the military when it comes to service member home buyers.
What can I do with a VA Loan?
There are other ways a VA Loan can help you. Use this loan type to:
- Purchase a home or condo.
- Build a new home.
- Renovate an existing home with a cash-out refinance.
- Refinance an existing loan to get a better rate.
- Purchase a manufactured home.
- Use the Energy Efficient Mortgage option when installing energy efficient improvements.
- Refinance a current VA loan to secure a better rate.
What types of refinance loans are available?
On top of the basic VA Loan, there are two available refinance variations:
Interest Rate Reduction Refinancing Loan or IRRRL: This will allow you to take advantage of a lower interest rate or to switch up the terms of your loan.
Cash-Out Refinancing: This allows you to take out cash against your home’s equity to refinance for more than your current loan may be worth. You can then use that difference to pay for big expenses such as home renovations, college tuition, and health care expenses.
What are some of the benefits of a VA Loan?
- No need for a down payment.
- Eligible for 103.5% financing when your loan falls within the max loan limits.
- PMI is not necessary.
- Competitive interest rates compared with other loans.
- Disabled veterans don’t need to pay funding fees.
- Some lender fees, such as origination fees, are limited.
- With a cash-out refinance, you can refinance up to 100%.
- With new manufactured homes, the builder will give you a one-year guarantee that the home was constructed according to VA-approved specifications and plans.
- You can prepay part of or all of the loan without paying a pre-payment penalty.
- The VA will help with personal loan servicing and financial counseling in the event you are facing temporary financial difficulties.
Who is eligible for a VA Loan?
First, you need to obtain a formal government document known as a Certificate of Eligibility which outlines your entitlement to a VA loan. Those who qualify for a certificate include veterans, guard or reserve, active duty, and military spouses.
You could also become eligible if you are the un-remarried spouse of a veteran who has died in service or as a result of a disability related to service, or to someone who is missing or is a prisoner of war.
Visit the VA’s page on eligibility:
https://www.benefits.va.gov/homeloans/eligibility.asp
To get a Certificate of Eligibility, you have to apply using VA Form 26-1880. This requires you to provide a copy of your DD-214 (Certificate of Release or Discharge from Active Duty).
Here are some more legal requirements to become eligible for a VA Loan:
- The loan has to be used for an eligible home purchase.
- The homeowner has to occupy the home for a reasonable period of time after closing.
- The applicant has to be a satisfactory credit risk.
- The income of the applicant or spouse must be enough to cover payments and maintenance costs.
- Only the veteran and spouse can be listed on the loan.
- On top of the certificate, loan applicants must obtain the usual documentation of their credit, savings, and employment information, including proof of at least a 620 credit score, no record of foreclosures within three years, and no bankruptcy within two years.
What is the process or obtaining a VA Loan?
Now you can start the process of applying for a VA Loan, which is quite similar to other home buying processes. First, you should get preapproved for a loan to get a ballpark idea of what you can afford. You will also want to search for a lender that specializes in VA Loans.
What is the appraisal process?
To finalize the loan, you must request an appraisal by the Veteran’s Administration, the fee for which will range from $300 to $400. A VA appraiser will determine the value of the house based on comparable homes in the area. The appraiser will require that the seller resolve any safety issues before the sale is allowed to go through.
Can I use my eligibility more than once?
Your certificate of entitlement is only valid for one house at a time, but there are some workarounds to the situation. For example, when both the husband and wife have certificates of eligibility and the wife has her certificate of eligibility tied up in a house they wish to rent out. In this case, the husband can use his certificate of eligibility if it is a first time use to obtain the lower rate.
Are VA loans safe from foreclosure?
VA Loans have the lowest foreclosure rate of any of the four main lending programs. A lot of that is owed to the thorough inspections process.
In the end, VA Loans are a great opportunity for qualifying members of the armed forces who want to buy a home. To learn more, check out these resources:
