A VA (Veterans Affairs) mortgage loan is a home loan program established by the United States Department of Veterans Affairs. It aims to help veterans, service members, and their surviving spouses to buy, build, repair, retain, or adapt a home for their own personal occupancy. Here are some key points about VA mortgage loans:
Eligibility
Veterans: Those who served on active duty and were discharged under conditions other than dishonorable.
Service Members: Current active-duty members.
National Guard and Reserve Members: Those who have completed at least six years of service.
Surviving Spouses: Unremarried spouses of service members who died in service or as a result of a service-connected disability.
Note that veterans and their spouses only are eligible. Significant others like fiances, siblings, children etc. cannot be on a VA loan.
Benefits
No Down Payment: Typically, no down payment is required, making it easier for eligible borrowers to purchase a home without saving a large sum of money.
Competitive Interest Rates: VA loans often have lower interest rates compared to conventional loans.
No Private Mortgage Insurance (PMI): Borrowers are not required to pay PMI, which is typically required for conventional loans with less than 20% down payment.
Easier Qualification: Less stringent credit and income requirements compared to conventional loans.
Limited Closing Costs: The VA limits the amount of closing costs that veterans can be charged.
Assumable Mortgage: VA loans can be transferred to another eligible borrower if they assume the loan.
Foreclosure Avoidance: The VA provides assistance to help borrowers avoid foreclosure.
The rates are generally a little bit better than conventional loan pricing even before factoring loan level pricing adjustments, meaning that they don’t add on fir lower credit scores, etc.
Funding Fee
The VA funding fee is a one-time payment that borrowers must pay when they receive a VA-backed or VA direct home loan. This fee helps lower the cost of the loan for U.S. taxpayers since the VA loan program doesn't require down payments or monthly mortgage insurance.
The amount of the funding fee depends on the loan amount, type of loan, the borrower's service category, and whether the borrower has a down payment.
Loan Types
Purchase Loans: For buying a new or existing home.
Cash-Out Refinance Loans: For refinancing an existing loan while extracting cash from the home's equity.
Interest Rate Reduction Refinance Loan (IRRRL): Also known as the VA streamline refinance loan, it helps borrowers reduce their interest rate or change their loan terms.
Native American Direct Loan (NADL) Program: For Native American veterans to buy, build, or improve a home on federal trust land.
Adapted Housing Grants: For veterans with a permanent and total service-connected disability to help buy, build, or modify homes to accommodate their disabilities.
IRRRLs are great for veterans because there is no appraisal or credit qualifying required. Existing loan must be a VA loan. Cash out is not allowed on an IRRRL though.
Process
Certificate of Eligibility (COE): Obtain a COE from the VA to prove eligibility.
Prequalification and Preapproval: Work with a lender to determine how much you can borrow and get preapproved for a loan.
House Hunting and Purchase Agreement: Find a home and sign a purchase agreement.
VA Appraisal: The VA will conduct an appraisal to ensure the home's value and condition meet their standards.
Closing: Finalize the loan and close the deal on the new home.
VA mortgage loans provide significant benefits to eligible veterans and service members, making homeownership more accessible and affordable.
Keep in mind that the VA is committed to protecting veterans when it comes to purchasing a home and will require a VA appraisal and the review of all inspection reports. Any structural, health and safety issues, etc. will need to be addressed prior to closing.
VA loans are for owner-occupied properties only, but can be used to purchase 1-4 unit properties with zero down.
VA does not set a minimum fico, but most lenders require a 620 or better credit score.