What is a VA Loan?
A VA loan is available through the United States Department of Veterans Affairs and issued by private lenders. The VA dictates the mortgages offered, sets qualifying standards, and guarantees a loan portion.
With VA loans, service members, veterans, and families of service members can buy homes with little to no down payment, no private mortgage insurance.
- A VA loan is a mortgage home loan offered through a Department of Veterans Affairs program.
- Qualified borrowers can use a VA loan to buy a property or refinance an existing mortgage.
- These loans are available to Veteran service personnel and their families.
- VA loans have easy terms, such as no down payment, no mortgage insurance, no-prepayment penalties, and limited closing costs.
How a VA Loan Works?
VA loans support active service members, veterans, and surviving spouses in becoming homeowners. The borrower presents a certificate of eligibility from the VA to the lender in a loan application.
The Veterans Administration offers a home loan guaranty benefit to help qualified veterans buy, build, repair, or adapt a home for personal ownership. VA loans offer up to 100% financing on the value of a home.
- Get Prequalified
Find a VA lender to get an estimate of how much house you can afford based on your income, credit, entitlement to get prequalified.
- Get Preapproved
Loan preapproval is a significant step, and lenders will verify income and financial information to get a clear sense of your purchasing power. The result is receiving a preapproval letter.
- Put in an Offer
When you with your agent find the perfect VA loan-approved home, it’s time to craft an offer and negotiation a contract with the seller.
- Go Through the VA Appraisal and Underwriting
Once under contract, your lender will order a VA appraisal of the property to ensure the property meets fair market value and the VA’s minimum property requirements. Meanwhile, underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized.
After checking all legal documents and paperwork, you will be issued a clear to close and move on to your loan closing.
5 Types of VA Loans
The VA offers several types of mortgage loans to help veterans and their families.
- VA home purchase loans help veterans to buy a home at a competitive interest rate.
- Cash-out refinances loans allow mortgage holders who are veterans to borrow against home equity to pay off debt, fund school, or make home improvements.
- Interest rate reduction refinances loans, also known as streamline refinance loans, this is a VA-loan-to-VA-loan process that helps borrowers obtain a lower interest rate by refinancing an existing VA loan.
- The Native American Direct Loan Program helps eligible Native American veterans finance the purchase, construction, or improvement of homes on federal trust land.
- Adapted housing grants help veterans with a permanent and total service-connected disability purchase or build an adapted home or modify an existing home for their disability.
VA Loan Application
The VA loan application is a standardized loan application form 1003 known as Freddie Mac Form 65, issued by Fannie Mae.
Following paperwork are required to apply:
- Copies of Two years of your W2 statements
- Copies of your previous two pay stubs,
- Documentation of other assets such as checking accounts, savings accounts, trust funds, etc.
- Two years of consecutive tax returns will be required if self-employed.
- The Veteran also needs to provide a Certificate of Eligibility and their DD 214.
What is the VA Funding Fee?
The VA Funding Fee goes to the VA directly to ensure the program runs for veterans and military homebuyers for their future generations.
According to the borrower’s circumstances, the fee varies. The funding fee usually is 2.3 percent of the home’s purchase price for the first time using the VA home loan program. An Interest Rate Reduction Refinance loan fee is just 0.5 percent.
Benefits of VA Loan
- VA loan recipients can reuse the benefits and do not have to be first-time home buyers.
- No down payment is mandated.
- No private mortgage insurance premium requirements.
- Closing costs are limited, and the seller will pay.
- If the borrower returns the loan on time, the lender will not charge a prepayment penalty.
- Guidance is available from the VA to help borrowers avoid default.
10 Things You Should Know About VA Loans
- They are reusable.
- They are only for certain types of homes.
- They are for primary residences only.
- The VA does not issue them.
- But the government guarantees them.
- They are available despite foreclosure or bankruptcy.
- They do not have mortgage insurance.
- They come with a mandatory fee.
- There is no loan limit to how much you can borrow.
- They do not have a prepayment penalty.