VA Loans – Types, Benefits, Eligibility and How to Apply
VA loans are solely intended to help eligible surviving spouses, veterans, and active duty service members buy a home. They are issued by certain approved lenders and partially guaranteed by the United States Department of Veterans Affairs (VA). Many of these loans have terms that are significantly more favorable than conventional loans, such as lower rates and no down payment.
Types of VA loans
The VA loans are essentially split into three major mortgage programs, including:
Purchase Loan – this is a fairly straightforward type of loan that makes it possible for the eligible service member and family to buy a home. They have the attractive interest rates, which is a result of the VA guarantee. The favorable terms at the time of making the initial application means there is the potential to see significant savings over the duration of the mortgage. Also, there is no requirement to organize private mortgage insurance (PMI) or offer a down payment.
Streamline Refinance Loan – this is a practical option for existing homeowners who are looking to refinance their home at more favorable terms. This type of loan is also referred to as an IRRRL (interest rate reduction refinance loan). A further option to use this type of loan program is to convert a mortgage with an adjustable rate (ARM) into a fixed rate, which makes money management a lot easier. Many people look to apply for the ARM when there is a low risk of fluctuating interest rates. In the event of being stuck with an adjustable rate mortgage when the interest rates start to climb, the option to refinance with a streamline refinance loan is certain to be very appealing for those in the military.
Cash-out Refinance Loan – the cash-out refinance loan gives the homeowner the opportunity to benefit from the built up equity in their property. By converting a certain amount of equity into cash it is possible to use the money for anything you wish, such as taking a well deserved vacation, renovating the home to paying down student loans or credit card debt. Additionally, the cash-out refinance loan is a viable option to convert an existing conventional mortgage into a military loan.
What are the VA loan benefits?
A military home buyer and their family have the opportunity to benefit from a very powerful and unique mortgage program. Let’s take a look at a few of the most appealing features:
Zero Down Payment – a very appealing feature is the 0% down for anyone that qualifies for this type of loan. The option to apply for a 0% loan is now extremely limited with VA loans one of the last remaining.
Private Mortgage Insurance (PMI) – the simple fact the VA loans are government backed means it is not necessary for the borrower to take out PMI.
Interest Rates – the government backing of the VA loans makes it easier for approved lenders to offer loans with an increased degree of flexibility. This means it is possible to get very competitive interest rates that are typically more appealing than the alternative non-VA loans.
Qualifying Process – the application process for qualifying personal is relatively straightforward. With the backing of the government, the lenders are exposed to less risk so the qualification requirements are less stringent.
Regulations and Fees – the VA loan is a federal based program that relies on the lenders to work directly with the military personnel or veterans. The Department of Veterans Affairs takes on the role of offering a guarantee, while a private lender will offer the finance package.
With a guarantee in place to give the lender a very useful amount of protection in the event of a buyer defaulting on payments, the lender is in a much better position to offer the very attractive loan terms and conditions.
Loan Limits – any qualifying past or present service member has the option to buy a home up to a value of $453,100. This is applicable to most regions of the country and is subject to a zero down payment.
Funding Fees – the VA loan includes a funding fee that is used to ensure this program is maintained for the future. The applicable fee relates to the individual circumstances of the borrower, but will not apply for those with disabilities connected to past service. Typically, the funding fee is in the region of 2.15% for the first time users of this loan. However, the fee may increase for subsequent use, which is typically increased to about 3.3%.
Certificate of Eligibility
In order to apply for the VA loan, a standard requirement is to obtain a certificate of eligibility, which needs to be shown to the lender. This document is sourced via the Department of Veterans Affairs. Once the lender has seen sight of this certificate, they will be in a position to actively help with organizing the VA loan.
What are the eligibility requirements?
There is certain basic eligibility requirements that the active duty service member, veteran, National Guard member or reservist must meet to apply for the VA loan.
A few of the standard conditions include:
Peacetime service: served at least 181 days of active service
Wartime service: served at least 90 days of consecutive active service
National Guard or Reserves: served at least six years in the National Guard or Reserves
Also, those with a service-connected disability or spouse of military personnel who died on duty may be eligible.
How to apply for a VA loan
The process of applying for a VA loan takes in the region of 30-45 days once a home is found and under contract. However, the exact time-frame will vary with each buyer’s personal circumstances. Before starting the application process, it is essential to make sure you comply with the eligibility requirements and able to obtain the Certificate of Eligibility. Also, at the time of finalizing the application, it will be necessary to present certain paperwork, such as recent bank statements, tax returns and W-2s.