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The Lowdown on VA Loans...
There are many benefits, as taken directly from the Veterans Affairs site: no down payment required (unless required by the lender or the purchase price is more than the reasonable value of the property); buyer informed of reasonable value; negotiable interest rate… and more.
What is a VA Loan?
If you’re a military service member, veteran, or eligible surviving spouse, the VA Home Loan could be an excellent option for you. This type of mortgage, guaranteed by the U.S. Department of Veterans Affairs (VA), has unique advantages that set it apart from other types of loans. When we say “guaranteed” in this context, we mean that if for some reason you can’t repay the loan, the VA steps in to cover a portion of the loan, reducing the risk taken on by the lender.
Perhaps the most significant benefit of a VA Home Loan is the possibility for qualified borrowers to finance the entire purchase price of their home without needing to make a down payment. In the mortgage world, a down payment is an upfront percentage of the home’s cost, and it can often be a substantial sum. For those who find it hard to save for a hefty down payment, this feature of VA loans can be a game-changer.
VA loans also eliminate the need for Private Mortgage Insurance (PMI). Typically, if a borrower can’t put down 20% of the home’s price upfront, they’re required to pay for PMI. This is an additional cost designed to protect the lender if the borrower defaults on the loan. However, because VA loans are guaranteed by the VA, borrowers are exempted from PMI, saving them a considerable amount each month.
Another distinct advantage of VA loans is that they generally offer lower interest rates compared to conventional loans. This means you’ll be paying less over time to the lender for the privilege of borrowing money to buy your home. This could potentially save you thousands of dollars over the life of the loan.
When it comes to credit score requirements, VA loans are typically more forgiving than other mortgage types. Your credit score is a number that reflects your creditworthiness based on your past borrowing and repayment history. VA loans’ more flexible credit requirements make them accessible to borrowers with a range of credit histories.
Finally, the VA puts a cap on closing costs, the fees, and charges you must pay to finalize your mortgage. This limit can make the upfront cost of buying a home potentially less costly for VA borrowers.
While these advantages are considerable, it’s important to ensure you’re eligible for a VA loan. Eligibility generally requires meeting certain military service requirements and obtaining a Certificate of Eligibility (COE) from the VA.
Remember, other factors like your credit score, employment history, and the size of your down payment may also influence how much you can borrow. It’s always advisable to consult with a mortgage professional or lender for a more accurate understanding of what you can afford and what your options are.
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A VA (Veterans Affairs) loan is a type of mortgage loan guaranteed by the U.S. Department of Veterans Affairs and designed to help active duty service members, veterans, and eligible surviving spouses become homeowners. VA loans offer several advantages, including:
No down payment required: VA loans allow eligible borrowers to finance 100% of the home’s value without a down payment.
No private mortgage insurance (PMI): Because the VA guarantees a portion of the loan, borrowers are not required to pay for private mortgage insurance, which can save them hundreds of dollars per month.
Competitive interest rates: VA loans typically have lower interest rates than conventional loans, which can save borrowers thousands of dollars over the life of the loan.
Flexible credit requirements: VA loans have more relaxed credit requirements than conventional loans, making them more accessible to borrowers with less-than-perfect credit.
Closing cost limits: The VA limits the number of closing costs that borrowers can be charged, which can reduce the upfront cost of buying a home.
To be eligible for a VA loan, borrowers must meet certain service requirements, such as serving in the military for a certain length of time and obtain a Certificate of Eligibility (COE) from the VA.
However, it’s also important to consider your overall financial picture and make sure you can comfortably afford the mortgage payment along with your other expenses and financial goals, such as saving for retirement or paying off debt.
Here are the steps you can take to estimate how much house you can afford:
Determine your gross monthly income. This is your income before taxes and other deductions.
Calculate your monthly debt obligations. This includes things like credit card payments, car loans, and student loans.
Subtract your monthly debt obligations from your gross monthly income. This will give you your maximum monthly housing payment.
Multiply your maximum monthly housing payment by 0.28 to get an estimate of your maximum mortgage payment.
Use a mortgage calculator to estimate how much house you can afford based on your maximum mortgage payment, down payment, interest rate, and loan term.
Keep in mind that other factors, such as your credit score, employment history, and the amount of your down payment, may also affect how much you can afford to borrow. It’s always a good idea to speak with a lender or mortgage professional to get a better idea of your options and what you can realistically afford.
VA loans and traditional mortgages have vital differences that borrowers should be aware of when deciding which type of loan to pursue. Here are some of the main differences:
Eligibility requirements: VA loans are only available to eligible veterans and active-duty service members, while traditional mortgages are available to anyone who meets the lender’s underwriting criteria.
Down payment: VA loans do not require a down payment, while traditional mortgages typically require a down payment of at least 3% to 20% of the purchase price.
Private mortgage insurance (PMI): VA loans do not require PMI, while traditional mortgages may require PMI if the down payment is less than 20% of the purchase price.
Interest rates: VA loans often have lower interest rates than traditional mortgages, which can save borrowers money over the life of the loan.
Credit requirements: VA loans have more flexible credit requirements than traditional mortgages, making it easier for borrowers with less-than-perfect credit to qualify.
Closing costs: VA loans may have lower closing costs than traditional mortgages, as some closing costs are prohibited or limited by the VA.
Appraisals: VA loans require a VA-approved appraiser to determine the home’s value, while traditional mortgages may allow the lender to use their appraiser.
The VA loan can be a great option for eligible veterans and active-duty service members looking to purchase or refinance a home. It offers several benefits that traditional mortgages do not. However, borrowers should carefully consider their options and consult a qualified mortgage professional to determine the best course of action based on their needs and circumstances.
A VA Cash-Out Refinance is a home loan available to eligible veterans and active-duty service members. With a cash-out refinance, the borrower can refinance their existing VA loan and obtain additional funds above the remaining balance of their current mortgage, which can be used for various purposes, such as home improvements, paying off high-interest debt, or covering unexpected expenses.
The cash-out refinances the existing mortgage with a new, larger loan that pays off the original mortgage and provides cash to the borrower. The borrower can receive up to 100% of the home’s value in money, but the VA’s maximum loan amount limits the amount.
Some of the benefits of a VA Cash-Out Refinance include:
Access to cash: Borrowers can access the equity in their home without taking out a separate loan.
Lower interest rates: VA Cash-Out Refinance loans typically offer lower interest rates than traditional home equity or personal loans.
No mortgage insurance: VA loans don’t require private mortgage insurance (PMI), which can save borrowers hundreds of dollars per month.
No prepayment penalties: Borrowers can pay off the loan early without penalty.
To be eligible for a VA Cash-Out Refinance, borrowers must have a VA loan that is in good standing and meet other program requirements set by the VA. They must also have sufficient equity in their home to qualify for the loan. Additionally, borrowers may be required to pay a funding fee, depending on the loan amount and whether the borrower is a first-time or subsequent use of the VA loan program.
A VA Energy Efficient Mortgage (EEM) is a type of mortgage offered to eligible veterans and active-duty service members that provides funds to make energy-efficient improvements to a home. The EEM program is designed to help borrowers reduce their energy consumption and save money on their utility bills.
The EEM can be used to purchase a new home or to refinance an existing VA loan. The funds for the energy-efficient improvements are included in the mortgage, and the borrower repays the loan over the mortgage term.
Some of the benefits of a VA Energy Efficient Mortgage include:
Lower energy bills: The improvements made with the EEM can help lower the borrower’s energy bills and save them money over time.
Increased comfort: Energy-efficient improvements can make the home more comfortable by reducing drafts, improving indoor air quality, and regulating temperature.
Increased home value: Energy-efficient upgrades can increase the home’s value, making it more attractive to potential buyers.
Competitive interest rates: EEMs offer the same competitive interest rates as other VA loans.
No down payment required: VA loans, including EEMs, do not require a down payment.
To be eligible for a VA Energy Efficient Mortgage, borrowers must have a VA loan that is in good standing and meet other program requirements set by the VA. They must also have a home energy assessment performed by a qualified energy rater, who will determine the most cost-effective improvements for the home. The cost of the energy assessment can be included in the EEM. The amount of the EEM is based on the estimated energy savings and cannot exceed $6,000.
The VA loan program was created by the U.S. government as part of the Servicemen’s Readjustment Act of 1944, commonly known as the G.I. Bill. The G.I. Bill was signed into law by President Franklin D. Roosevelt and provided a wide range of benefits to returning World War II veterans, including access to low-cost home loans.
The VA loan program was created to help veterans become homeowners by providing them with affordable mortgage financing. The program was designed to help veterans who might not otherwise be able to qualify for a traditional home loan due to the challenges of readjusting to civilian life after serving in the military. The program has since been expanded to include eligible surviving spouses.
The VA loan program is administered by the U.S. Department of Veterans Affairs, which guarantees a portion of the loan to the lender, which allows lenders to offer more favorable loan terms to veterans and active-duty service members. This guarantee reduces the risk to lenders and enables them to provide lower interest rates and more flexible underwriting standards. The VA loan program has helped millions of veterans and service members become homeowners.
The VA guaranty is a financial guarantee provided by the U.S. Department of Veterans Affairs (VA) to lenders who make VA loans to eligible veterans and active-duty service members. The guaranty provides protection to the lender if the borrower defaults on the loan. The VA guaranty is a percentage of the loan amount that the VA guarantees to the lender, and it varies based on the size of the loan and the borrower’s entitlement.
The VA guaranty is designed to encourage lenders to make VA loans by reducing the risk of financial loss. In the event of a default, the lender can file a claim with the VA to recover a portion of the unpaid principal balance up to the amount of the guaranty. The VA then assumes the responsibility for collecting the debt from the borrower and may take legal action to recover the debt.
The VA guaranty serves as a benefit to both the lender and the borrower. For the lender, it reduces the risk of financial loss, allowing them to offer more favorable loan terms to borrowers, such as lower interest rates and more flexible underwriting standards. For the borrower, the guaranty can make it easier to qualify for a VA loan, even with less-than-perfect credit or low down payment, and can save them money on the cost of the loan, such as by eliminating the need for private mortgage insurance.
It’s important to note that the VA guaranty does not eliminate the borrower’s responsibility to repay the loan, nor does it guarantee that the borrower will never default on the loan. However, it does provide a safety net for the lender and can make it easier for veterans and active-duty service members to obtain affordable homeownership.
VA loan limits are the maximum loan amounts that eligible veterans and active-duty service members can borrow with a VA loan. The loan limits vary by county and are determined by the Federal Housing Finance Agency (FHFA) based on the conforming loan limits set by the FHFA for conventional loans.
The VA loan limit is the maximum amount of the loan that the VA will guarantee, which can be up to 25% of the loan amount, subject to the FHFA loan limits. The VA loan limit does not cap the total amount a veteran or active-duty service member can borrow to purchase a home, but it does limit the amount that the VA will guarantee. The VA loan limit applies to both purchase loans and cash-out refinance loans.
The loan limits are updated each year and are based on the FHFA conforming loan limits. The loan limits are set at a level that is intended to enable veterans and active-duty service members to purchase homes in most areas of the country without having to come up with a large down payment. In high-cost areas, the loan limits are set higher to reflect the higher cost of living and housing.
It’s important to note that VA loan limits do not affect the ability of eligible borrowers to obtain a VA loan. Borrowers can still obtain a VA loan for an amount that exceeds the loan limit, but they may need to make a down payment on the amount above the limit. Additionally, VA loan limits do not apply to certain loans, such as VA Jumbo loans or VA loans for Native American veterans, which may have different rules and guidelines.
The VA funding fee is a one-time fee that is charged by the U.S. Department of Veterans Affairs (VA) to eligible veterans and active-duty service members who obtain a VA loan. The funding fee helps offset the cost of the VA loan program and reduces the cost to taxpayers.
The VA funding fee is a percentage of the loan amount and varies depending on the type of loan, the down payment amount, and whether the borrower has used the VA loan program before. The funding fee can be paid upfront in cash or rolled into the loan amount.
The VA uses the funding fee to fund the program and provide benefits to veterans, such as home loan guarantees, educational and training benefits, and other services. The price also helps to reduce the program’s cost to taxpayers and ensures that the program is self-sustaining over the long term.
The VA funding fee benefits both the borrower and the lender. For the borrower, it allows them to obtain a VA loan with no down payment or low down payment, and the fee can be rolled into the loan, reducing the upfront cost. For the lender, the fee helps to reduce the risk of financial loss by providing a guarantee to the lender in the event that the borrower defaults on the loan.
It’s important to note that some borrowers may be exempt from paying the funding fee, such as veterans who receive disability compensation from the VA, surviving spouses of veterans who died in service or as a result of a service-related disability, and certain active-duty service members.
The VA loan can be a great option for eligible veterans and active-duty service members looking to purchase or refinance a home. Here are some reasons why the VA loan may be a good option:
No down payment required: One of the biggest advantages of the VA loan is that eligible borrowers can purchase a home without down payment, making homeownership more affordable and accessible.
No private mortgage insurance (PMI) required: Because the VA guarantees a portion of the loan, borrowers are not required to pay for PMI, which can save them hundreds of dollars per month.
Competitive interest rates: VA loans often have lower interest rates than conventional loans, which can save borrowers money over the life of the loan.
More flexible credit requirements: VA loans have more relaxed credit requirements than conventional loans, which can make it easier for borrowers with less-than-perfect credit to qualify.
No prepayment penalty: Borrowers can pay off the loan early without penalty, saving them money on interest charges.
Streamlined refinancing: The VA offers a streamlined refinancing option that can help borrowers reduce their interest rate or change their loan terms with minimal paperwork and hassle.
Overall, the VA loan program provides valuable benefits to eligible borrowers and has helped millions of veterans and active-duty service members achieve homeownership. However, like any financial product, the VA loan is not suitable for everyone, and borrowers should carefully consider their options and consult with a qualified mortgage professional to determine the best course of action.
VA loans continue to perform well in today’s mortgage and real estate environment. Despite the challenges of the COVID-19 pandemic and its impact on the economy, VA loans have maintained a lower delinquency rate than other types of loans, according to data from the Mortgage Bankers Association.
VA loans offer several benefits that make them attractive to eligible borrowers, such as no down payment requirement, no private mortgage insurance (PMI), and more flexible credit requirements. These benefits can make homeownership more accessible to veterans and active-duty service members, especially in a competitive real estate market with rising home prices.
In addition, the VA has recently changed the program to improve the borrower experience and reduce the time and paperwork required to obtain a VA loan. For example, the VA has implemented a new digital platform for the loan application process, which can save time and reduce errors.
The VA loan program remains a valuable resource for eligible veterans and active-duty service members looking to purchase or refinance a home. However, it’s essential for borrowers to carefully consider their options and consult with a qualified mortgage professional to determine the best course of action for their individual needs and circumstances.
To get a VA loan, you’ll need to follow these general steps:
Determine your eligibility: You can check your eligibility for a VA loan by obtaining a Certificate of Eligibility (COE) from the U.S. Department of Veterans Affairs. You can do this online through the VA’s eBenefits portal or by submitting a VA Form 26-1880 to the VA.
Find a lender: Once you have determined your eligibility for a VA loan, you’ll need to find a lender that offers VA loans. You can search for lenders online or ask for recommendations from friends, family, or your real estate agent.
Pre-qualify for a loan: Before shopping for a home, pre-qualify with a VA-approved lender. This will give you an idea of how much home you can afford and help you narrow your search.
Find a home: Once pre-qualified, you can start looking for a home that meets your needs and budget. You can work with a real estate agent to help you find homes eligible for VA financing.
Apply for the loan: When you have found a home, you can apply for the VA loan through your lender. You must provide documentation such as your COE, proof of income, and credit history.
Close on the loan: If approved, you must attend a closing to finalize the home purchase. At the closing, you’ll sign the loan documents, pay any closing costs, and get the keys to your new home.
It’s important to note that the specific process for obtaining a VA loan may vary depending on your lender, your state’s laws, and other factors. However, following these general steps can help you get started on the path to obtaining a VA loan.
Yes, if you have previously used a VA loan, you may be able to use it again. The VA loan program does not limit the number of times an eligible borrower can use the program to purchase or refinance a home. However, there are specific requirements and limitations that you should be aware of:
You may need to restore your entitlement: If you have used your VA loan entitlement in the past and still own the home that you purchased with the loan, you may need to restore your entitlement before you can use it again. This can typically be done by paying off the previous VA loan in full or by selling the home and paying off the loan with the proceeds.
You may have a higher funding fee: The VA funding fee may be higher if you have used the program before, depending on the type of loan, the down payment amount, and other factors.
Your loan limits may be lower: The VA loan limits may be lower for subsequent loans, depending on the county in which you are purchasing the home and other factors.
You may need to meet specific requirements: Even if you have used a VA loan before, you’ll still need to complete the program’s eligibility requirements, such as serving a minimum period of active duty or meeting other service requirements.
You can use the remaining entitlement: If you have used a portion of your VA loan entitlement in the past but have not used it all, you may be able to use the remaining portion to obtain another VA loan.
Suppose you are interested in using a VA loan again. In that case, you should consult with a qualified mortgage professional who can help you understand your options and determine the best course of action based on your individual needs and circumstances.