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Things you need to know about VA Loans

military army man holding a mini model house

Are you an active-duty military member or veteran looking to buy or refinance a home? As current or veteran military personnel, you are entitled to apply for a VA loan which carries many advantages over traditional bank loans. This loan is also available for spouses who have lost their partner through their involvement in the military. Here we’ll run you through advice for buying real estate as a military member or veteran.

What is a VA loan?

In 1944, the VA Home Loan program was created by the GI Bill of Rights in order to help veterans in civilian life after World War II. Assured by the Department of Veterans Affairs (VA), a VA loan is a mortgage that is issued by private lenders like banks, mortgage companies, or credit unions. A VA loan may make it easier for you to purchase a home because it usually doesn’t need a down payment. You can get a VA Home Loan if you’re qualified military personnel on active duty, a U.S. veteran, or a surviving military spouse.

How does it work?

If you aren’t able to make a VA loan payment, the VA guarantee means that the government will pay the lender a part of your loan. This lessens the risk that lenders must take, which is why they don’t often require down payments for VA loans. This type of loan is also made on favorable terms. Once you’ve been deemed eligible for a VA loan, you can choose a lender and fill out an application for a VA mortgage. Some lenders even specialize in VA loans.

Who is eligible?

You can get a VA mortgage if you fall under the following criteria:

  • You’re a member of the military on active duty or a veteran and you’ve rendered the required duration of service. If you are classified as a disabled service member or veteran entitled to a VA Loan, there is also the option to apply for a VA Grant. This grant can be used for the purpose of building or renovating a home. The VA Grant comes in these options:
    • Special Housing Adaption (SHA) Grant
    • Specially Adapted Housing (SAH) Grant
    • Temporary Residential Assistance (TRA) Grant
  • Your spouse is a service member who died during active duty or due to a disability that was connected to their service and you haven’t remarried after turning 57 or by the date of December 16, 2003. You’re also eligible for a VA home loan if your spouse is a prisoner of war or missing in action.
  • You fall within the lender’s most basic requirements for credit and income. While the VA does not have a minimum credit score for you to qualify for a VA loan, lenders are allowed to establish their own basic standards. A lender will take into account your income as well as any debt you have when evaluating your capacity to repay your mortgage.
  • The house you wish to purchase is eligible after building codes and safety standards are taken into consideration. It should also be your main residence.

You should obtain a VA certificate of eligibility before the loan closes in order to show that you have rendered the required military service. A spouse claiming through their partner’s is also required to provide this certificate. You can request a VA approved lender to get the document for you or request the certificate through the VA.

VA loan types:

VA Loan Feature
VA purchase mortgage -No down payment needed
Interest Rate Reduction Refinance Loan -Substitute a VA Loan for a VA or conventional mortgage
VA cash-out refinance -Lower your interest rate or refinance from an adjustable to fixed rate by replacing your current VA mortgage with a VA loan
Native American Direct Loan -Eligible Native Americans can purchase, build, renovate, or refinance a home on federal trust land

Advantages of a VA loan

There are a lot of benefits to getting a VA loan versus a conventional loan. A VA loan doesn’t require a down payment or mortgage insurance. It also offers competitive interest rates. Finally, there’s a big advantage when it comes to closing costs. The Department of Veterans Affairs caps the lender’s origination fee to an amount not exceeding 1% of the loan amount and prevents lenders from setting other closing costs.

VA loan disadvantages

While VA loans have many benefits, they also have some disadvantages that you should be aware of. While they don’t warrant mortgage insurance, they have an extra charge known as a funding fee. The federal government mandates this fee, which covers the foreclosure cost in case you default on your loan. It can range from 1.4% to 3.6% of your loan, based on your down payment and whether or not it’s the first time you’ve gotten this type of loan.

Since a VA loan can only be used to buy your main home, you can’t use it to purchase a vacation house or investment property. Also, not all homes are eligible for a VA home loan. The house you want to purchase must first be evaluated by a VA-approved appraiser to see if it passes the VA’s basic property standards. In many cases, homes that need extensive renovation may not qualify.

For further information or any assistance on VA Loans, feel free to get in touch with us.

You can call us at 610.430.8100 or send us a message at remaxdirectwc(at)gmail(dotted)com.