VA loans are a significant benefit for eligible service members, veterans and their living spouses. This helps you to apply for loan terms that are more favourable if you are looking to purchase or refinance a home than many other loans even though your credit is not flawless.
Whether you are still serving in the military or are a veteran, you are usually eligible for a VA loan. Here is what you need to know about such government-supported special loans.
What is VA Loan?
VA loans are government-supported loans provided to eligible veterans and active servicemen. Private borrowers, such as a mortgage company or bank, grant VA loans which are backed by the U.S. Department of Veterans Affairs (VA). The VA does not grant VA loans, but it does decide who is eligible for one, and which lenders may grant them. This means that VA loans pose less risk to borrowers because of thy the government agency them. The U.S. government established the VA Home Loan in 1944 to help returning service members buy homes without requiring a down payment or an outstanding credit. More than 24 million VA loans have been secured by this landmark incentive program, helping veterans, active duty service members and their families buy or refinance a home.
VA Mortgage is more relevant today than ever before. VA loans offer many benefits over traditional loans, including lower interest rates, lenient borrowing requirements, and no down payment required at the close. Also, they do not have monthly mortgage insurance. However, lenders set their own conditions for some qualification factors. In addition, VA loans have credit standards that are more lenient than most mortgage programs.
How a VA Loan Works
You need to present a COE from the VA to the lenders. A Certificate of Eligibility (COE) is a document that tells the lender that you qualify for a VA loan. To receive a COE, you must provide evidence of service. The proof you need to give depends whether you are an active-duty service member, a veteran or a surviving spouse. However, several lender’s underwriting conditions must be met. Mostly, VA loans are easier to apply and qualify for than traditional loans.
VA loans offer complete financing on the value of a house. Applicants of VA loan do not need to be homeowners for the first time. You can also reuse the advantages and transfer the loan to another eligible person eligible.
Types of VA Loan
- VA home Purchase loans – these help veterans to purchase a house at a reasonable interest rate. Besides that, these purchase loans don’t need private mortgage insurance or a down payment.
- Interest Rate Reduction Refinance Loans (IRRRLs) – this is also known as streamline refinance loans. IRRRLs assisted borrowers in getting a lower interest rate by refinancing a current VA loan.
- Adapted Housing Grants – these loans support veterans with a permanent and complete service-related handicap purchase, build or renovate a home to compensate for their disability.
- The Native American Direct Loan Program – these aids Native American veterans to fund the purchase, build or modify a house on federal trust land. Also, there are reductions in interest rates.
- Cash-out refinance loans – these allow veteran mortgage holders to borrow against home equity to fund the school, pay off debt or make home upgrades. This method of refinancing provides a new mortgage for a more significant amount than the current note and turns home equity into cash.
VA Loan Eligibility
You probably qualify to apply for a VA loan if you are, or have been, a military member, National Guard or reserves. Moreover, spouses of military members who have died in the line on duty, or because of a service-connected disability, can also apply for VA loan. Is it anyone who has served in the Armed Forces eligible for a VA loan? No, you must fulfil at least one of the following:
- For an active duty member, qualifies after serving 181 days during peacetime.
- During wartime, active duty member qualifies after serving 90 consecutive days.
- For National or reserves, qualify after serving for more than 6 years.
- Are married to a military member who died while on duty or due to service-connected disability.
Benefits of VA Loan vs Conventional Loan
|VA loans||Conventional loans|
|No down payments||Up to 20% down payments to secure a house loan|
|Does not require you to purchase Private Mortgage Insurance (PMI)||PMI is required for loans with less than 20% down payments.|
|Reasonable Interest Rates which offer lenders a higher degree of safety and flexibility.||Increased risk for lenders because there is no government support.|
|Easier to qualify because VA has a lenient lending policy||Standard qualification processes|
Most states of the U.S., the maximum loan cap for one-unit properties is $510,400 in 2020. That is a raise from $484,350 in 2019. Additionally, loan limits apply to veterans with more than one existing VA loan or those who have lost an earlier one to foreclosure.
The VA Support Fee goes directly to the VA to ensure that the program continues to operate by taking any extra pressures off taxpayers and veterans for future generations of veteran and military homebuyers. The fee varies depending on the circumstances of the applicant and is not applicable for veterans with disabilities related to the program.
|Down Payment||First-time Applicant||Subsequent Applicant|
|5% to 10%||1.65%||1.65%|
|10% and above||1.40%||1.40%|
What if you Stop Paying the Loan?
Another significant benefit to the VA loan program is that they provide help to struggling borrowers. When the VA loan borrower is not able to pay the mortgages, the VA renegotiate with the lender on behalf of the veteran. There are VA counsellors who help homeowners sort out their repayment plan, adjust their loans, and do everything they can to assist you to avoid foreclosure.
Is VA Loan Right For You?
In this guide, we have discussed what the VA loan is and some of its primary features. Do you feel you are ready? If yes, apply now for a VA loan.