What Is a VA Mortgage Loan?
Why should I get a VA loan? This is perhaps the most common question asked when a veteran is considering using their VA eligibility.
First, VA loans are a great option for a veteran who is looking to purchase a home with little or no money down. Because the VA is willing to guarantee up to 25% of the loan, banks are willing to push aside their desires for money down (within limits). As part of this, many of the closing costs of VA loans can be rolled into the loan balance further instead of being paid up-front. Because of the VA guarantee, many lenders are willing to offer lower interest rates for VA loans than for conventional loans. Aside from cost savings, the VA loan program has many protections built-in to make sure the veteran is able to find a home that truly suits his or her needs, and that they won’t get trapped in an unfavorable mortgage situation. To get help with VA loans get with one of our specialists by calling the number at the top of the page.
The short answer is yes. For a Chapter 7 bankruptcy the discharge date must be at least 24 months in the past in order to be approved for any VA loans. If you are currently in the middle of a Chapter 13 bankruptcy, you must be able to show 12 months of clean payment history and receive written authorization from the bankruptcy trustee to move forward with any VA loans.
The GI Bill, signed into law by Franklin D Roosevelt in 1944, led to the birth of the VA Loan program as it exists today. By using VA loans, the dream of homeownership became a realization for millions of veterans. This new government program created the opportunity for veterans to purchase a home with no down payment and arguably did more for the well-being of VA-eligible veterans than any other program before or since.
VA loans can be established by any one of the 25 Million-plus men and women who have served faithfully as members of the United States armed forces. Those that are eligible for VA loans have served honorably in the armed forces for at least 90 days during war time or 181 continuous days during times of peace. For those wishing to use their eligibility for VA loans, they must have at least two years of service time accumulated for both officers and enlisted personnel. Widows of veterans are also eligible to use VA loans under some specific guidelines. Members of the National Guard and reserve units may also establish VA loans, but have a six-year service requirement that must be met first.
The maximum guarantee on VA loans is $104,250 in most areas of the country. Since the VA will guarantee up to 25% of a VA loan, that means that when looking into VA loans the veteran should be considering a house that is valued at no more than $417,000 unless they reside in a county where the loan limits are higher. For example, the county loan limits in Alexandria, VA are $825,000. That being said, the VA is only the guarantor on the loan and not the lender itself. Thus, VA loans are subject to approval by the individual lenders who may have different requirements for eligibility. In recent months many of the banks and lending institutions that have previously lent money for VA loans are now refusing to do so, or have altered their internal guidelines such that they make approval more complicated, increasing the need for licensed and certified loan officers who focus on VA loans.
Not all VA loans are established at fixed rates. Hybrid VA Loans, for example are fixed for a period of time but then move to adjust after the fixed period expires. If a fixed rate is what you want, make sure that your loan specialist is aware of that, and the final paperwork indicates a fixed rate loan.
The qualification process for VA loans is very straightforward. If you are a current member of the military or qualified veteran (your DD-214 can provide the necessary information to satisfy this), and you plan on inhabiting the home as your primary place of residence, you qualify for VA Loans. In general VA loans cannot be used for a second home or rental property.
Yes your credit does matter. Although the Department of Veterans Affairs does not provide guidelines for VA loans with regards to credit, the lenders offering the loans generally do. If a lender offering you a VA loan is not interested in your credit score, that is a major red flag. The bright spot is that credit requirements on VA loans are usually less stringent than their conventional counterparts.
In general the rates on VA loans are very competitive with their more traditional counterparts. Although, there is no straight forward answer as interest rates are constantly changing and are determined by market forces. Hybrid VA Loans can generally be found at the lowest rates, with more traditional fixed rates floating in a range similar to those of conventional loans.
Over the past couple of years, the term “ARM” has become the proverbial “hiss and a byword” among many consumers when speaking of mortgage loans. Hybrid VA loans were established to give the flexibility of an ARM along with the stability of a more traditional fixed rate mortgage. Hybrid VA loans generally start at a rate that is much lower than that of its fixed counterparts. Hybrids keep this low fixed rate for a shorter period of time, usually either three to five years. After the fixed period has elapsed, hybrid VA loans adjust to the current market. This adjustment is made with very strict rules governing it. Unlike the pay-option ARM products that helped to collapse the mortgage market, Hybrid VA loans may only adjust once per year as opposed to quarterly. There are also specific caps in place so that the interest rates do not run away on the veteran. For example, on Hybrid VA loans the annual adjustment cannot be more than 1% in any given adjustment period, and hybrid VA loans are only allowed to adjust a certain amount through the duration of the loan (usually 5-6% above the start rate). With these safeguards in place, hybrid VA loans are a great option for many veterans.