What are VA Home Loans?
In 1944 the GI Bill caused a change in the market place by creating VA home loans. The economy of the United States really has never been the same since. When President Franklin D. Roosevelt signed the GI bill, and programs for VA home loans were created, suddenly members of the United States military who had previously only be able to dream of home ownership, now had those dreams within their grasp. No longer were those who protect our freedoms at a disadvantage, as compared to those who stayed home while they fought abroad.
Over the years VA home loans have become available to more than 25 Million American service men and women. Requirements for obtaining VA home loans are not difficult. Are you currently serving on active duty in the armed forces? Congratulations VA home loans are available to you. Are you retired from active duty service? You qualify as well. Did you spend six years as a member of a National Guard or reserve unit? You also qualify for VA home loans. Have you been honorably discharged from the armed forces and served at least 6 months (or 90 during war time)? You too can get one of these VA home loans. And not to forget the loved ones of fallen servicemen, VA home loans are available to the widows of deceased veterans.
VA home loans have benefits that many other conventional loans do not offer. For example the Department of veterans affairs offers a guarantee of up to 25% of the loan amount to the lenders of VA home loans. What does this mean for veterans? With VA home loans the need for a large down payment is reduced. This also makes it easier for veterans who take out VA home loans to qualify with these lenders. They become somewhat easier to deal with and the requirements for home ownership are reduced. The 25% guarantee is generally on VA home loans amounting up to $417,000, but that ceiling may be higher in part of the country where housing prices are higher. The Guarantee is paid to the lender in the event of a default on the mortgage, and usually replaces some of the common assurances that lenders require such as down payments. If veterans default on VA home loans, they are required to repay the amount paid by the guarantee before using the entitlement again.
Commonly Asked Questions.
What are the costs involved with VA home loans?
Just as with other mortgage products there are costs involved with VA home loans. They are much the same as with their conventional cousins. With any real estate transaction Title insurance is generally required. This is insurance for both the borrower and lender against liens or judgments against the property. It also insures the proper recording of the deed and other legal documents involved with the purchase or refinance. Along with title insurance the title companies also charge for search and examination of the previous title which goes into the findings for the title insurance policy. After Title company charges VA home loans are subject to a VA funding fee. This fee varies based on the type of transaction involved. The VA funding fee is only 0.5% for a streamline refinance. For a purchase by a veteran never having used VA home loans the fee is 2.15%, and for a “cash out” refinance of existing VA home loans the charge is 3.3%. All are percentages of the total loan value. For example purchase VA home loans with a sales price of $250,000 would have a VA funding fee of $5,375. The remaining costs of VA home loans are paid to the brokers and lenders. Brokers and lenders receive the Origination fees, which the VA has capped at 1%, as well as any discount points that are paid by the borrower to lower the overall interest rate. These discount points (or more commonly referred to as “points”) are capped at 2% by the VA.
Does my credit score matter with VA home loans?
Simply put, yes it does. The VA has not set strict guidelines for the credit scores required for VA home loans; however the lenders have stepped in with their own risk management teams and set their own guidelines. Guidelines on credit for VA home loans vary depending on the value of the home, as well as the loan product in question. For example they are more lenient on streamline refinances where some lenders do not require a credit score at all, but are much more stringent with high value properties where the loan approaches the value of the home. However across the board the credit requirements on VA home loans are in general much more lax as compared to conventional products.
How do I qualify for VA home loans?
Apart from the financial qualifications for VA home loans you must also be an eligible veteran. A copy of the DD-214 can establish eligibility. If you have previously had VA home loans, the amount of your remaining eligibility must be verified to ensure your qualification. In general if you already have outstanding VA home loans they will have to be paid off in order to re-use the eligibility.
Are down payments required on VA home loans?
One of the greatest benefits of purchasing with VA home loans is that it is one of the last remaining 100% financing options left in the market place. With most VA home loans a down payment is not required. Because of the guarantee afforded to the lenders by the Department of Veterans Affairs, lenders will generally not require down payments to be made. This is an advantage for veterans who want to buy a new home but may not have the savings for a large down payment.
Can I refinance to a better rate later?
Absolutely! With VA home loans you are afforded even more options when it comes to refinance, than with a conventional mortgage. In the future a simple streamline may make sense, or perhaps a cash out refinance to finally finish the basement with. Either way you have options.
