What is a VA home loan?
The Government program that has arguably had one of the greatest impacts on the overall economy of the United States was the GI Bill, signed by President Franklin D. Roosevelt in 1944. The GI Bill established benefits for members of the United States military and their families. On such benefit was the VA home loan. With the advent of the VA home loan, homeownership became within the grasp of millions of American service men and women.
Approximately 25.5 Million Americans have served in our nation’s armed forces and are now eligible for a VA home loan. A VA home loan is available to any veteran of the armed services who has met the requirements. Requirements include current active duty service, or a formal honorable discharge after 90 days active service during wartime or 181 continuous days of active duty service during peace time. National guardsmen and reservists are also eligible for a VA home loan through the GI Bill as long as they spent at least 6 years as a member of the National Guard or reserve unit. A VA home loan is also available to the widows of eligible veterans.
One benefit of the VA home loan is the guarantee afforded to the lender from the Department of Veterans affairs. The VA guarantees 25% of the loan up to $417,000 (or higher in some higher cost areas). Because of this guarantee offered by the VA, many of the lenders who provide the funds for a VA home loan are more willing to lend to a borrower who might otherwise not qualify for a conventional mortgage. This guarantee is paid to the lenders in the event that the loan is defaulted on. The guarantee is to replace the usual assurances a lender may have by way of a down payment. A veteran who defaults on a VA home loan must repay the VA for the amount of the guarantee before being eligible to take out another VA home loan.
Commonly asked Questions
Do I need a down payment for a VA home loan?One of the largest benefits of a VA home loan is that it is one of the only remaining “Zero down” financing options. Provided that you are purchasing a home at or below the VA loan limit ($417,000 in most areas) you can get a VA home loan to cover 100% of the purchase price of the home, and in many cases have the sellers cover all of the closing costs. This is a great benefit to veterans who don’t have sufficient savings for a more traditional down payment. Once I have a VA home loan can I refinance it to a better rate?Yes of course! In fact a VA home loan has options for refinance that most other types of loans do not. For example you can go through a streamline refinance or a “cash out” refinance with a VA home loan. Both of these options allow you to get into a lower rate. What is a Streamline?A Streamline refinance of your VA home loan is a faster and much simpler refinance of your existing mortgage. Through a streamline you are able to drop the interest rate and usually the monthly payments in a process that is more simplified than a conventional refinance. The streamline is also much faster in processing time. What is a “Cash Out” VA home loan?A cash out refinance is a VA home loan where you are able to receive cash at closing up to 90% of the value of the home. This is a great option for veterans looking to consolidate debt or make improvements to their home. Is my VA home loan a fixed or variable rate?A VA home loan can be either a fixed rate or a variable rate. The lenders that offer the VA home loan programs have both sorts available. If your goal is to end up with a fixed rate make sure that the loan papers are drawn up to reflect that. How do I qualify for a VA home loan?The qualification process is short and easy. You must of course be an eligible veteran or spouse of a deceased veteran. To establish this the lender will require a copy of the DD-214. You must have eligibility remaining with the VA for the VA home loan, and, in general, you must be planning to use the home as your primary place of residence. Most (not all) banks do not allow a VA home loan to be used on a second home or investment property. |
How much does my credit matter for a VA home loan.Credit is a consideration for the lenders that provide the VA home loan, but the Department of Veterans Affairs does not have a minimum credit requirement to be eligible for a VA home loan. The lenders that provide the funds for the mortgage use credit to help determine the likelihood of a default on the VA home loan. They have found over time that those with lower credit scores are more likely to default on a mortgage. The credit requirements imposed by the lenders on a VA home loan are generally more relaxed than those of a more traditional mortgage program. What are the Costs involved with a VA home loan?A VA home loan does have associated costs involved. Some of these costs include the fees that your local government charges to record the VA home loan, any points that you as a borrower pay to the lender for a lower interest rate. Other fees include the origination charges that are charged by the lender or broker for the application and processing of the loan, as well as the funding fee charged by the VA for each VA home loan. This funding fee varies depending on the type of transaction. 0.5% for a Streamline refinance, 2.15% for a purchase VA home loan, and 3.3% for a “cash out” refinance. Title insurance is also required on all VA home loan transactions. |
