Are you a veteran who has proudly served your country? Are you looking to purchase a new home for you and your family?
If so here's some good news: Thousands of veterans such as yourself have been able to take advantage of a variety of VA programs designed to help you purchase a new home with no money down, competitive interest rates, and no mortgage insurance premiums.
In fact, according to the U.S. Department of Veterans Affairs VBA Annual Benefits Report, in 2015 there were 631,142 loans guaranteed with an average loan size of $234,174. Over $153 billion worth of loans were guaranteed by the administration in total.
There's no doubt that the VA Home Loan Guaranty program has been a resounding success thus far and a very popular choice for veterans. There’s a very good chance it can help you make your dream of home ownership become a reality too.
Here’s how you can take full advantage of this awesome program.
5 Key Benefits of the VA Loan Program
The reason why so many veterans are excited about the VA Home Loan Guaranty program revolves around a couple of factors, including:
No Down Payments
While typically a lender will require a percentage of the purchase price be funded by the borrower, VA loans provide funding for the entirety of the purchase price.
Obviously, this greatly increases how much home you’ll be able to afford.
Note: The no down payment rule applies only when the sale price doesn't exceed the appraised value of the property.
No Mortgage Insurance Premiums
In many cases, lenders require that the borrower must pay a certain fixed rate every month for mortgage insurance. This type of insurance is designed to reduce the risks to the lender associated with lending more than 80% of the purchase price of the property.
VA loans have no such insurance requirements, decreasing your costs.
Minimal Closing Costs
Due to special rules imposed by the VA for guaranteeing these special loans, there is a hard limit on the closing costs you will pay.
In other words, you'll have to pay only a minimal amount of the total transaction costs out of pocket and keep more money.
Additionally, closing costs may be paid by the seller in certain instances.
No Prepayment Penalties
If you want to pay off your loan early, many lenders may try to charge you a prepayment penalty. Fortunately, VA loan rules require that the lender does not charge any such penalties.
If you run into trouble making your monthly payments, the VA may be able to provide some assistance. This benefit is especially useful for weathering downturns in the economy.
In addition to these very valuable benefits, VA loans provide some extra bonuses for veterans. You don't have to be a first-time buyer, and the loan program is reusable.
Additionally, VA loans are assumable so long as the individual assuming the loan meets the necessary qualifications.
Key Differences between VA and Conventional Loans
There are five key differences between a VA-backed home loan and more conventional loans you might find at a bank or credit union. Let's take a closer look at them:
- Down Payments: Most typical loans will require that you put down 20% of the purchase price as an upfront payment. For a $200,000 home, that means you'll have to put down $40,000 upfront - before closing costs and other transaction fees. This is not the case for a VA loan.
- Mortgage Insurance: Traditionally, when a borrower makes less than a 20% down payment on a home, banks will require a monthly mortgage insurance payment to offset the risk associated with lower down payments. VA loans do not have this requirement.
- Closing Costs: There are a number of closing costs associated with traditional loans, and they can be very high in some cases. VA loans prevent you from incurring unreasonable closing costs.
- Loan Limits: Although there is no limit on the total amount of financing provided by the VA program, lenders will only allow a no-down payment arrangement for up to 4 times a veteran's available entitlement. Basic entitlement for each veteran is $36,000, so loans up to $144,000 will not require a down payment.
- The Buying Process: To take advantage of the VA loan program, you'll need to acquire a certificate of eligibility (COE) indicating that you meet the requirements. We'll cover these requirements in greater detail in the next section.
Now that you have a good understanding of the VA loan program and how they differ from conventional loans, read on to learn more about the requirements you'll have to meet in order to apply for one.
How Can You Get a VA Loan?
In order to qualify for a VA-backed loan, there are certain requirements you need to meet.
For example, members of the armed forces who are currently on active duty are eligible to apply for a VA loan after 90 continuous days of active duty service.
And veterans of the Gulf War must have had 24 continuous months or the full period (at least 90 days) of your active duty orders.
Requirements vary for veterans of previous wars - click here to learn more about the specific active duty requirements specific to each war period .
In general, applicants are required to have a credit score of at least 620. You'll also need to have sufficient income as proof you can reliably pay your mortgage every month.
Although you may be approved for a certain maximum mortgage, it is recommended you stay within your budget. Don’t automatically take the biggest mortgage you’re eligible for. Make sure it’s the right fit for your financial situation.
These requirements are listed in greater depth on the VA home loan website. It's crucial that you carefully examine your eligibility in order to ensure that you are fully qualified and eligible to take advantage of the VA Home Loan Guaranty program. It's also critical that you’re completely honest throughout the entire process.
Finally, you'll need to acquire your Certificate of Eligibility (COE) and proceed to find your desired home and sign a purchase agreement. After this step, you'll then apply for a VA loan through a private lender.
Remember - the VA does not directly underwrite the loans. Instead, the VA guarantees the loan for a private lender.
Lesser-Known Types of VA Home Loans
In addition to purchase loans - generally the most common type of loan you'll see out there, there are a few different programs you might be interested in from the VA. These programs are not as well known - some might even say that they are secret - but can be very helpful for certain types of special projects, including:
Interest Rate Reduction Refinance Loans (IRRRL): These loans - also known as Streamline Refinance Loans - may help you acquire a lower interest rate for your monthly payments by refinancing your current VA loan. If your loan's interest rate is higher than prevailing interest rates, this may be a good option for you.
Native American Direct Loans (NADL): Eligible Native American veterans may apply for an NADL to purchase, construct, or improve homes on Federal Trust Land. These loans may also be used to reduce interest rates on current VA loans.
Adapted Housing Grants: If you are a veteran with a disability incurred as a result of your service, these grants may help you to purchase or build a home with specific adaptations to help you live comfortably.
Energy Efficient Mortgages (EEM): If you're planning to install solar panels or other energy efficiency improves, or if you'd like to construct a new home with energy-efficient features, this VA Program may help you to offset some of the initial costs associated with installing the improvements.
Key Takeaways about the VA Home Loan Guaranty Program
Ultimately, a VA home loan is one of the most powerful mortgage programs in the country. The combined benefits of competitive interest rates, no down payments or mortgage insurance, and no prepayment penalties mean your dream of home ownership can come true.
To be one of the thousands of veterans taking advantage of this great program, be sure to do your research to find out if you are eligible. If so, then we're here to help you on your journey to home ownership.
Once again, thank you for your service as a veteran of the armed forces. You've earned your home, and it's a great time to find the perfect house for you and your family. Good luck, and happy house hunting!