Va Loans For Buying A Home
What is a VA loan, how does it work, and are you eligible to obtain one? All are good questions to ask, especially if youre a military servicemember, activity duty borrower, or have a veteran in the family. Thats because a VA loan is a type of home mortgage loan that offers preferred terms to borrowers who have served and currently serve our nation.
A VA loan is available to veterans and active duty service members, and offered through the U.S. Department of Veterans Affairs . You may be wondering, though: How does a VA loan work? What types of VA home loans are available? And of course: What interest rates, closing costs, and terms can I expect to see from a VA loan product?
Lets take a closer look!
Va Home Loans Offer More Than Just A Purchase Option
Although the most common use of the VA loan is to purchase a home, the VA mortgage can also be used as a refinance option. There are two ways to use the VA benefit for a refinance. They include the VA streamline refinance, and the VA cash-out refinance.
- Streamline Refinance For any veteran that is currently paying on a VA mortgage, it is possible to refinance the loan to get a better rate, a lower term, or both. This option is called the Interest Rate Reduction Refinance Loan, or commonly known as Streamline Refinance.
- Cash-out Refinance If a person has more value in their home than what they owe, they can refinance the mortgage to get the equity in cash. A qualifying veteran who currently has a mortgage, whether it is a VA mortgage or other home loan type, can use the VA home loan to refinance.
The veteran usually does not need a new home appraisal or a new Certificate of Eligibility for the streamlined refinance. As long as the last 12 mortgage payments have been made on time, the loan should be a simple transaction.
How Does A Va Loan Work
VA loans work a bit differently than conventional mortgages. The Department of Veterans Affairs does not make or originate loans, but backs a portion of each loan against default. This backing, or guarantee, is what gives private lenders the confidence to extend $0 down financing and advantageous rates and terms.
However, from a process perspective, VA loans work fairly similar to most other mortgage options, but with a few caveats. A typical VA loan process works something like this:
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Your Home Must Qualify For Va Loan
This is one of the harder aspects of VA loan restrictions to explain. Before you can purchase your home using VA loans, your property must qualify. The VA will send a specially appointed VA appraiser to assess the house. Here is a good breakdown of the VA property requirements but in general, your home must be a conventional home in good working condition.
What Is The Minimum Credit Score Required For Va Loans
The VA has not established a minimum credit score when it comes to VA mortgages. However, most of the lenders that offer VA loans require a minimum FICO score of 620 or higher. We suggest applying with several lenders when your credit score is an issue. Even the VA mortgage lenders that will allow for a lower credit score, wont accept subprime credit.
The underwriting guidelines for VA loans state that the applicants should have paid all their obligations timorously for a minimum of 12 months , to be regarded as a satisfactory credit risk. Additionally, the VA typically requires a waiting period of 2 years following a Chapter 7 foreclosure or bankruptcy before they will insure a home loan.
Any borrower in Chapter 13 is required to have made a minimum of 12 on-time payments, along with securing approval from a bankruptcy court.
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Fixed And Adjustable Rate Mortgages
A fixed-rate mortgage is a home loan with a rate of interest that remains constant throughout the life of the loan. This makes budgeting relatively easy for borrowers.
Adjustable-rate mortgages are home loans with varying interest rates. The rate can go up or down, depending on the conditions. Initially, the interest rate remains constant however, after the initial term, the loan resets, and so does the loan interest.
Which Loan Type Is Right for You?
To answer the above question, you must consider the following questions:
- Can I afford an ARM if the interest rate increases?
- What amount can I afford to pay monthly toward my mortgage?
- How long will I be living on the property?
- What are the recent trends for interest rates?
ARM might be a good option if you can afford the monthly payments, even if they increase. Moreover, it can be a wise choice if a decrease in interest rates is anticipated.
ARM is better than a fixed-rate mortgage in the following scenarios:
- You are not planning to stay for a long time on the property.
- An increase in your income is expected.
- You are thinking of paying off the loan before the loan terms reset.
Compared to the rest of the market, VA mortgage rates are generally lower than an FHA or conventional loan. Since the VA guarantees a part of the loan, lenders are able to provide it at a lower interest rate.
Benefits Of Owning A Home
For most people, a large part of the American Dream is owning their own home. It brings up visions of settling down, putting down roots and becoming part of a community. It doesnt matter if you are in your 20s and just starting out or in your 60s looking to downsize and retire. Buying a home often feels like a new beginning. Its also a wise financial move, opening up a world of opportunities not available to you while renting. If you are thinking about buying a house, here are some things to consider:
· Equity your house is a solid investment. If you purchase a $200,000 home, every payment you make reduces the amount you owe to the bank. At the same time, chances are good that the value of your house will increase. When you decide to sell your home, you get that money back. If in 10 years that $200,000 home is worth $250,000, and you owe $165,000 on your mortgage, you get $85,000 cash in your pocket. If youre renting and decide to move after 10 years, you have nothing to show for it.
· Taxes you are allowed to deduct mortgage interest, property taxes and certain energy efficient upgrades from your taxes. The tax savings is a huge benefit to owning your own home instead of renting.
These are just a few of the benefits of home ownership. Your house should be a welcoming, stable place for you relax and be at peace. A veteran home loan program can get you there.
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How To Apply For A Va Home Loan
If youre wondering how to apply for a VA home loan, the good news is that applying for one is generally similar to the process of applying for other types of mortgage. That means following the below process:
- Obtaining a Certificate of Eligibility to serve as proof of military service.
- Getting preapproved for a loan to find out how much home that you can afford and so that you can make more convincing offers on properties of interest.
- Shopping around for a house that meets the VAs minimum property requirements.
- Making a purchase offer to buy a home, and negotiating with the seller to address any counteroffers, before putting together a sales contract with the help of a real estate agent or attorney.
- Going through the VA home appraisal and underwriting process to get your loan approved for financing.
- Closing on your new property.
Native American Direct Loan Program
If you or your spouse are a Native American veteran, you can opt for the NADL program to purchase, renovate, and build a home on Federal trust land, given you meet the following conditions.
- You have a valid VA COE.
- You currently reside in the house you are using your NADL benefits for.
- You can prove that you have enough funds to pay for the monthly installment of a NADL.
- You can meet your lenders financial and credit requirements.
- Your tribal government has an MOU with the VA on how the plan will work on the trust land.
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The Closing Costs On Va Loans Are Lower
The VA has limited what a lender can charge for closing costs to a VA loan applicant.
This is one of the other ways that VA loans become more affordable when compared to conventional and FHA loans. The money that can be saved on the closing costs could be used for moving costs, buying furniture, and more.
Cons Of Choosing A Va Mortgage
- They come with a funding fee, which is paid to support the program.
- The funding fee increases after every subsequent use of VA loan benefits. You will pay more in funding fees the second time you borrow a loan.
- The loans could exceed market value.
- The loans are provided only by VA-approved private lenders.
- You cannot purchase a vacation home or an investment property with these loans.
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Va Interest Rate Reduction Refinance Loan
This refinancing option allows you to refinance an existing VA home loan into a new loan with new guidelines and lower interest rates. You must meet the following conditions to qualify for an IRRRL:
- You have an existing VA-backed loan.
- You are using VA IRRRL to refinance an existing VA-backed loan.
- You currently reside in the home you are refinancing.
Why go for an IRRRL?
Also known as a streamline refinance, this refinancing option allows you to qualify for even lower interest rates. This can lower your monthly payment and result in massive savings.
Additionally, this loan typechanges your fixed/adjustable interest rate to a fixed interest rate, making your monthly mortgage payment more stable.
To apply for an IRRRL, get in touch with a VA-approved private lender so that you can submit all the required documents, follow the loan closing process, and pay the closing costs.
How To Qualify For A Va Loan With Part
It is possible to qualify for VA financing even when you have multiple jobs or part-time employment. You will need to show that you have earned a consistent part-time income over the last 2 years, along with stability when it comes to how many hours you have worked. The lender will also need to clarify that the income you are receiving appears stable.
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Understanding The Va Funding Fee
Although we mentioned no down payment or private mortgage insurance requirements for the VA mortgage, there is a fee attached to all VA home loans. This item is known as the funding fee.
The funding fees premise is to provide money to the Veteran Administration to continue offering the guarantee for future VA home loans.
For qualifying veterans buying their first home, the fee is 2.15% of the homes purchase price. If the veteran uses their VA benefit again, the fee increases to 3.3%.
Thankfully, this fee does not have to be paid upfront. The VA loan guidelines will allow the fee to be added to the total loan amount, thus giving the veteran the ability to pay the fee back over time.
There are two groups of people that are not required to pay the funding fee.
The first group is surviving spouses, mentioned earlier. Since the veteran passed away either in service or due to a service injury, there is no need to charge the fee.
The second group is veterans whose income derives from disability pay based on their service. If a veteran was rendered disabled by their military service and is currently receiving disability compensation, they are not required to pay the VA funding fee.
These facts about how VA loans work are often not realized until speaking with a qualified mortgage professional.
Is A Va Loan Worth It
A VA loan usually isnt worth it in the long run. The main reason is because people mostly get them to skip saving for a down payment.
A low or no down payment makes your loan tens of thousands of dollars more expensiveand that can lead to all sorts of money problems down the road.
We dont want that for you. Thats why at Ramsey we teach home buyers how to save a big down payment of 20% or more on a 15-year fixed-rate conventional loanthis is your overall lowest cost mortgage option.
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What Is The Va Funding Fee
The funding fee is a one-time fee youll pay at closing or roll into the loan. Currently, this fee clocks in at 2.30% for first-time borrowers and 3.60% for second-time borrowers. Some borrowers including those with disability ratings of 10% or higher can have the funding fee waived.
Our LenderVeterans United Home Loans is a VA approved lender Mortgage Research Center, LLC NMLS #1907 . Not affiliated with the Dept. of Veterans Affairs or any government agency. Not available in NV. 1400 Veterans United Dr., Columbia, MO 65203. Equal Housing Lender
Find Your Home And Get Your Appraisal Ordered
Your lender will need to order your appraisal from a VA-approved inspector. One good thing about VA appraisals: The appraisers on the VA rotation must finish your appraisal within a set time, depending on your location. Check the appraisal for any repair requirements and be prepared to negotiate with the seller if anything needs to be fixed.
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How Va Loans Work: What Most Borrowers Dont Know About Va Loans
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers dont know about the program.
For the vast majority of military borrowers, VA loans represent the most powerful lending program on the market.
These flexible, $0-down payment mortgages have helped more than 24 million service members become homeowners since 1944.
However, even the most seasoned VA borrowers and real estate agents often don’t understand the program’s unique benefits and quirks. Here we dive into what a VA loan is and how the program actually works.
You Can Shop Around For The Best Va Loan Rate
VA loans are not funded or originated by the VA.
They are also not loans that the government offers. At the same time, the VA itself does not set the rates for VA loans. Rather, the VA loans are on offer by mortgage lenders, credit unions, savings-and-loans institutions, and U.S. banks, with each setting its own VA loan fees and rates. This makes it a simple task to compare and shop around for a loan, allowing you to choose one of the VA loans that match up to your budget.
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The Best Time To Get A Va Home Loan
VA mortgages already come with several benefits, but is there an ideal time to borrow a VA loan?
Generally speaking, the best time to borrow a loan is when you know you can afford it. You might also want to spend some time on improving your credit score before applying so you can get the best quote.
Another major determinant is your service type. Veterans are in the clear, but if you are an active military member, you might get a PCS.
VA loans are only financed for residential properties, so it is essential to borrow for a property where you know you will be staying for a while.
Va Mortgage Requirements For Spouses
Getting VA benefits as a spouse depends on whether you receive Dependency and Indemnity Compensation .
If you receive DIC, you must fill out the VA Form 26-1817 and obtain a copy of your Veterans DD Form 214.
If you dont receive DIC, youll need to apply by filling out VA Form 21P-534EZ and submitting the application to your states Pension Management Center.
In addition to these, you will also need to submit a copy of your marriage license, the veterans death certificate, and separation documents.
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Do Va Loans Have A Down Payment
Generally speaking, VA loans do not require a down payment since the VA itself guarantees the loans. Although a borrower can decide to put some money down when purchasing a home, many dont. Almost 90% of all VA loans are issued without a down payment.
With conventional mortgages, the recommended down payment is usually 20%. While its possible to get a conventional loan with less money down, borrowers who put down less typically have to pay private mortgage insurance and higher interest rates. Thats not the case with a VA loan.
Sep The Ultimate Guide To A Va Loan
In the United States, the average household has more than $130,000 in debt, and the number of people living paycheck-to-paycheck is on the rise. With this kind of financial burden, it can be hard to save up for a down payment, let alone qualify for a VA home loan with traditional underwriting guidelines.
Fortunately, there are many options available to help you purchase your first home! VA home loans work by using your military service as collateral instead of credit scores or a money down payment which means they offer low interest rates and flexible qualifications but how do you find out if you qualify? Read on to learn more about what VA home loans are, who should consider them and where to get started.
Heres the ultimate guide to VA loans and how you can qualify for these benefits.
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