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VA Home Loans: What They Are and Who Qualifies



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A loan with a VA guarantee means that you do not have to make a down payment.

Angela Lang / CNET

Coming up with the down payment for a home can be an insurmountable hurdle, especially when you factor in all other upfront costs. That’s why a VA-backed home loan – which doesn’t require a down payment – can be your ticket to home ownership.

You or your spouse must be a current or former member of the United States military. And not all properties qualify.

Read on to learn more about how to get a VA loan and whether it’s right for you.

What is a VA loan?

VA home loans are not offered by the U.S. Department of Veterans Affairs – they are only backed by the agency. By guaranteeing VA home mortgages, the government gives lenders and financial institutions confidence that the loans are low-risk. That’s why you don’t need to make a down payment – as long as the sale price doesn’t exceed the estimated value of the home.

And because the government shares the risk, you should also get better terms and interest rates on a VA backed loan than other loans, even if your credit needs some work.

How does a VA loan work?

You still go through a private lender to get a VA loan. But if you stop paying your VA home loan, the government will be held responsible for the loan. You can access this service your entire life – it is not limited to one home. However, the loan can only be used for your primary residence, not vacation properties.

Who is eligible for a VA loan?

Veterans or service personnel who are or were on active duty must meet one of the following requirements to be eligible:

  • Served at least 90 consecutive days during times of war
  • Served at least 181 consecutive days in peacetime
  • Was fired due to a service-related disability
  • Are currently on active duty

Members of the National Guard or Reserve must meet the following requirements to be eligible:

  • Served at least six years in the selected reserve or national guard
  • Served at least 90 days of active duty.

Find out more about VA loan eligibility at the VA’s website.

What Are the Different Types of VA Loans?

Buy a loanIf you’re planning to buy a home, a standard VA purchase loan can get you decent interest rates from private mortgage lenders.

Native American Direct Loan: This loan is available to Native American veterans or veterans married to Native Americans to purchase, build, or improve a home on federal land.

Interest Rate Cut Refinancing LoanIf you’re struggling financially to keep up with your VA loan, an interest rate refinance loan can help you reduce your monthly payments.

Cash Out Refinancing LoanIf you want to make improvements to your home, pay off debt, or take steps toward your retirement fund, the VA can pay back refinancing loans paid out.

How to Apply for a VA Loan

If you believe you qualify, you must first apply for a Certificate of Eligibility, either through your private lender or through the VA’s eBenefits online portal. Veterans and current or former members of the National Guard or Reserve who have been activated must provide discharge or divorce papers (DD Form 214). Current service members, as well as members of the National Guard or Reserve, must present a service statement signed by their commander, adjutant, or personnel officer.

The following information should be included in your service declaration:

  • First and last name
  • Citizen service number
  • Date of birth
  • Date on which you entered employment
  • Any time lost
  • Command that provides the information

What are the pros and cons of getting a VA loan?

As with all types of loans, there are pros and cons to consider.

Benefits

No deposits: You can skip the battle of making up cash in advance as the government backs up your loan.

Lower closing costs: Yes, you still have to pay a closing fee even if you qualify for a VA loan. However, some closing costs will not apply to you and the start-up costs are limited to 1% of the total loan amount.

Low rates: Compared to traditional mortgage rates and Federal Housing Administration mortgage rates, the mortgage interest rates for VA loans are significantly lower. On May 11, the average VA interest rate for 30 years was 2.66% with an APR of 2.84%. Meanwhile, the average 30-year FHA purchase rate was 2.85% with an APR of 3.7%, and the traditional 30-year mortgage rate was 3.06%. A VA loan mortgage calculator will help you estimate your rates.

No mortgage insuranceNot only can you forgo a down payment with a VA loan, you can also skip paying for mortgage insurance since your loan is guaranteed by the government.

COVID-19 tolerance: Like other government-backed mortgages, the CARES law allows those struggling to keep track of their mortgage as a result of the pandemic to request a postponement until June 30. It lasts up to six months and borrowers can receive another six months if needed.

Cons

Primary houses only: Let go of your dreams of financing a vacation home with a VA loan. VA loans can only be used for the borrower’s primary residence and they must reside there.

Property suitability: Not all properties qualify under VA home loans. A VA-approved appraiser should evaluate your potential new home to make sure it meets the ownership requirements set by the VA. Unfortunately, this means that if you were hoping to buy a fixer-upper, you may not be able to do it with a VA loan.

VA financing costsOne of the benefits of a VA loan is that you don’t have to pay for mortgage insurance. But you will have to pay financing costs if you stop paying the loan. Once the government takes responsibility for the loan, it starts charging the fees, which are typically between 1.4% and 3.6% of the loan, and can be upfront or over time. getting paid.


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