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What Are VA Loans?
A VA loan provides active-duty service members and veterans with great benefits when it comes to acquiring a mortgage to purchase a house. VA loans offer some distinct advantages when compared to other home loans. Since the federal government guarantees a portion of the loans, the private lenders that underwrite VA loans can offer more favorable terms to qualifying borrowers.
Historically, the VA loan program has been able to offer long-term financing to eligible American veterans or their surviving spouses (provided that they do not remarry). A VA loan can be used to help veterans buy, build, repair, retain, or adapt a home for their own personal occupancy, offering low interest rates and lower closing costs than traditional mortgages offered by private lenders to the general public.
Benefits from a VA Loan
There are several benefits to a VA loan compared to more traditional loans. Understanding what those are can help you determine whether a VA loan is right for you. Benefits include:
No Down Payment Necessary.
Conventional wisdom tells us that you should pay a 20% down payment out of pocket when purchasing a home, and for good reason — it gives you instant equity, removing some risk for lenders. But because VA home loans are federally- backed, there is a guarantee that removes the normal risk factor for private lenders. For individuals who don’t have a lot of money saved, not having to pay a down payment up front removes a major obstacle to home buying.
No Private Mortgage Insurance (PMI).
In most cases, homebuyers must obtain a PMI if they are unable to put down 20% on a home. As mentioned above, this is because they are considered riskier to lend to, especially in the case of a foreclosure. Thanks to a VA loan, not paying a PMI as part of monthly costs can save borrowers 2–5%.
The VA program is a reusable program that provides veterans with benefits over a lifetime.
There are several options available for veterans to refinance their VA loan down the line to put themselves in a better position financially. Typically, borrowers who refinance on a loan can expect to pay better interest rates and lower monthly costs. A couple of the refinancing options available to veterans are:
- VA Interest Rate Reduction Refinance Loans (IRRRL): IRRRL loans (also known as streamline refinance loans) are typically used to reduce the borrower’s interest rate or to convert an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. An IRRRL can reduce the term of your loan from 30 years to 15 years.
- Cash-Out Refinance: A cash-out refinance allows veterans to transform the equity built into a house into cash. This type of refinancing is great for those looking to fund major life expenses, such as consolidating debt, paying for a wedding or college tuition, or doing home renovations. With access to upwards of 90% cash-out of the appraised value on your home’s equity, veterans are truly able to take advantage of applying this benefit where they see fit.
Native American Direct Loan (NADL) Program.
Specifically designed for Native American veterans (or spouses), this reusable program allows for Native American veterans to buy, build, or improve a home on federal trust land. This type of loan provides the same benefits as other VA loans over the period of a 30-year fixed mortgage with limited closing costs.
Adapted Housing Grants.
For veterans with a disability resulting from a service-related injury, adapted housing grants allow eligible veterans to make home modifications to accommodate a disability. This type of loan benefit can provide veterans with disabilities for grants totaling a maximum of $100,806.
It is also worth noting that it is possible to to refinance from other types of loans, such as conventional loans, to a VA loan. Additionally, VA home loan benefits may only be applied to certain types of properties. VA loans may not be used to purchase farm estates, property on foreign soil, or an investment property/second home. While overall costs on a VA loan are lower compared to other types of loans, there are still some costs and fees to keep in mind, like the VA loan funding fee and closing fees.
What are the Qualifications?
To qualify for specific VA loan benefits, length of service, duty status, and character of service are all considered when determining eligibility. For veterans and service members on active duty, a history of active duty service to qualify should include:
- 2 years for regular service members
- 6 years for Reservists and National Guard members
- 90 days active duty during wartime
- 181 days active duty during peacetime
Service-connected disability also influences the final decision. A complete list of service member eligibility requirements can be found here. Veterans will also need to qualify or apply for:
- Certificate of Eligibility (CEO). This is a document that tells a lender you meet the military service or surviving spouse requirements to get a VA home loan.
- Lending Requirements. While individual lenders determine the qualifying guidelines, a credit score of around 620 is generally needed, along with a debt to income (DTI) ratio of 41% or lower. Exceptions to the DTI rule do apply, such as if you have more than enough residual income.
How Can The Home Loan Expert Help?
Our active-duty service members and veterans deserve specialized services for the sacrifices they have made for our country. Through our Hero Loan program, The Home Loan Expert specializes in working with veterans and active-duty service members to meet their unique needs when it comes to applying for a VA loan.
We are committed to making this process as efficient and painless as possible through our stellar customer service; we even pay for a home appraisal and loan check up for our veteran homebuyers! For over 15 years, we’ve helped buyers like you get the best possible loans, as a thank you for your service. Ready to buy or refinance with a VA loan? Contact us today and let’s talk.