VA mortgages offer a lot of benefits for veterans, but also for the active-duty military. You can do several things to maximize your VA loan and make the most out of it.
We prepared this guide to help you or your military loved one to wrap your minds around VA loans clearly and easily.
Let’s get to it!
Everything you wanted to know about VA Loans.
What Is A VA Loan, And How Do They Work?
A VA loan is a mortgage. More specifically, it is a Department of Veteran Affairs-backed mortgage that can help Veterans, active duty military members, and their surviving families purchase a home with a little-to-no down payment.
There are many types of VA loans designed to help Veterans, service members, and their survivors to buy or improve a house. Borrowers still need to have.
VA loans offer better terms and conditions than regular mortgages, although borrowers still need to prove they have good credit and an income that matches the loan amount they want.
To get access to a VA Mortgage, you need a Certificate of Eligibility (COE) and choose between the different loan options.
Types Of VA Loans
There are different VA-backed programs aimed to help veterans buy, build or improve their homes:
This is the type of loan you need to build or improve a house. VA-backed loans offer some of the most convenient interest rates.
➔ No down payment in most cases.
➔ Better terms and interest rates than private mortgages.
➔ You can borrow up to the Fannie Mae / Freddie Mac conforming loan limit.
➔ You don’t need to pay for private mortgage insurance or premiums.
➔ Fewer closing costs.
➔ No penalties for paying off early.
Cash-out Refinance Loan
If you already have a mortgage with your bank, and you qualify; you can replace it with a VA-backed cash-out refinance loan to enjoy all its benefits.
➔ You can pay debts, or get out of financial trouble with it.
➔ If eligible, you can refinance a commercial loan with a VA-backed loan.
Native American Direct Loan
American veterans who also are Native Americans can have access to this program, which offers reduced interest rates and many other considerations.
➔ No down payment is required.
➔ No Private Mortgage Insurance is needed.
➔ Low closing costs.
➔ Low interest, fixed rates.
➔ Reusable benefits.
➔ The loan limit is the Fannie Mae / Freddie Mac conforming loan limit.
Interest Rate Reduction Refinance Loan
Your current VA-backed mortgage can get an interest rate reduction with an Interest Rate Reduction Refinance Loan (IRRRL). You can also get a new term and different conditions.
➔ Lower the monthly payments on your existing VA-backed mortgage.
➔ Switch between interest rates.
You need to cover the minimum active-duty service requirement based on when you served, and not have been dishonorably discharged. Surviving spouses of missing-in-action veterans can also qualify.
How To Buy A House With A VA Loan Step-By-Step
Here is everything you need to know before applying for a VA-backed loan to buy a house for the first time. If you meet all the requirements, you can start the process right here.
1. Check Your Finances
Even with all the benefits veterans can get, you still have to make monthly payments. Take to count your expenses, debt, and income, to make sure you are ready to make a new monthly commitment.
2. Check The Type Of Loan You Need
To buy a house for the first time, you are going to need a VA-backed purchase loan. This loan will be provided by a private institution -like a bank- and the VA will guarantee part of the loan against loss. That’s how they can offer better terms and benefits for lenders.
3. Get A VA-backed Home Loan Certificate Of Eligibility (COE)
When you apply for a mortgage, you need to show your lender the COE. There are different ways to get one:
You can find out if you qualify and start the process online here.
By US Mail
You need to fulfill a request for a Certificate of Eligibility (VA Form 26-1880). You’ll find the address in the form. This process usually takes longer.
You can download the VA form 26-1880 here.
4. Choose The Right Lender For You
While the VA backs your mortgage, the one who will provide the funds is a private institution, like a bank or credit union.
All lenders offer different benefits, interest rates, terms, and conditions, so you’ll need to check which one works best for you.
You’ll need to pay different fees, such as a loan origination fee (it is usually 1%). Depending on your lender and the type of loan, you may have to pay additional fees.
5. Choose A Real Estate Agent
Real estate agents are one of the best options when looking for a new home. Although there are some other ways to complete this part of the process, a realtor can help you find better options.
Make sure your agent understands your needs before choosing, and remember to pay close attention to all chargers, fees, and commissions before signing in.
6. Shop For A House
This is the most exciting part of the process! Keep track of your real needs as a family, and beware of unscrupulous sellers who will try to oversell you.
Before you pick one, remember you have to consider not only the monthly payment or the interests but also factors such as the daily commute or how close it is to parks, schools, and stores.
7. Work With Your Agent To Get A Purchase Agreement
Make sure the sales contract you get includes clauses in case of any contingency, as the “VA escape clause” or “VA option clause”. You can also ask your real estate agent for advice on other ways to void the contract if it doesn’t fit you. For instance, if the house fails a home inspection.
8. Get An Appraisal And A Home Inspection
There is a little confusion between these two things, so let’s check them out.
To purchase a house with a VA-backed loan, you need an appraisal from a VA-approved appraiser. They will make sure the house meets the minimum property requirements or MPRs, and provide their opinion about the value of the house.
This is a more detailed inspection of every aspect of the house, like the house structure, electrical, plumbing, heating, and cooling, insulation, air conditioning, among other things. After a home inspection, you will get a report detailing the condition of the building.
9. Double Check Pre-closing Paperwork
You will receive a Closing Disclosure form your lender at least 3 business days before closing. This document specifies fees, terms, closing costs, and the number of monthly payments; so make sure to review and double-check everything.
10. Close On Your New House
Get ready to sign a lot of documents. This is your last chance to check everything is in order. Make sure everything fits, from correct spelling to rates and terms. And of course, make sure to make every monthly payment in time to avoid any unpleasant surprises on your credit score.
Congratulations! You are now a homeowner!
Surprising Facts About VA Loans You Should Know
● You Can Use Them More Than Once
As long as you pay off any previous mortgage and keep a clean credit record, you can use your full VA entitlement as many times as you want.
● You Cannot Use A VA Loan For Some Types Of Home
VA loans are designed for properties in “move-in ready” conditions. You can purchase, for instance, a single-family home, a condo, modular homes, or multi-unit properties. However, if you are aiming for a fixer-upper, a downtown deli, or a working farm a VA loan may not be what you need.
● You Can Use Your VA Loan Only For Primary Residences
So if your plans are buying an investment property or a vacation home, you may want to check on other options. Although, you still can use your VA loan to buy a duplex or any other multi-unit property, as long as one of those is your primary residence. Check with your lender to make sure about your options.
● They Are Not Issued By The VA
Even if your mortgage is VA-backed, the one providing the funds is a private institution. It may be a bank or some other type of financial institution. The Department of Veteran Affairs only makes sure those private institutions approve the loan.
● Although They Are Still Guaranteed By The Government
The VA guarantees up to 25% of the total loan amount for those with a VA entitlement. That gives confidence to the lenders and helps veterans and military personnel to get preferential rates and terms.
● You Can Use A VA Loan Despite Foreclosure Or Bankruptcy
Of course, it is a little more problematic, but VA loans are available for anyone with a military record, despite previous foreclosures. Even if that foreclosure was on another VA loan.
● You Don’t Need Private Mortgage Insurance (PMI) With A VA Loan
Most mortgages -either private or federally backed- require some sort of mortgage insurance, especially if your down payment is less than 20% of the property value. However, VA loan borrowers don’t need one.
● You Need To Pay A Mandatory Fee
Although there is no need for private mortgage insurance (PMI), you still need to pay the VA Funding Fee. This fee helps the Department of Veteran Affairs to cover losses and to keep VA loans available for future generations.
● There Is No Actual VA Loan Limit
Although the Department of Veteran Affairs sets VA loan limits, those limits are not a cap on the loan amount. If you already have a VA mortgage or have defaulted on one in the past, you still have to stick to those limits. But borrowers with their full VA entitlement can get whatever amount the bank is willing to lend. The best part, of course, is that no matter the amount, you don’t need a down payment.
● No Early Pay-off Penalties
You can make as many extra payments as you want and can, shorten the mortgage term, and save a boatload of interest. As little as $100 extra a month can save you years of payments and thousands of dollars on interests.
Frequently Asked Questions About VA-backed Loans
Here are some answers to the questions most people ask about VA loans.
Who Qualifies For A VA Loan?
All veterans and active-duty military and their families. You must meet the basic service requirements set by the VA, have a valid certificate of eligibility, and get approved by a lender.
You can access a VA loan by meeting at least one of the following:
● Having 90 consecutive days of active service during wartime, or 181 days during peacetime.
● Having at least 6 years of service in the National Guard Reserves.
● Being a surviving spouse of a military member who died in the line of duty.
Can I Ask For A VA Loan If I Have A Low Credit Score?
Yes. VA loans can get approved with a minimum score of 580. Most private mortgages require at least 620.
Is There A Maximum Debt-to-income Ratio For A VA Loan?
Yes. You need a DTI ratio of no more than 41%. Although, it may depend on the lender.
Why Realtors Don’t Seem To Like VA Loans?
A VA mortgage usually comes with tighter property requirements. To meet them, sellers need to pay extra to fix and repair everything, which reduces their earnings.
How Much Is The VA Loan Funding Fee?
Up to 2021, the funding fee for first-time borrowers is 2.3%, with no down payment. Although, for a second time mortgage you need to pay 3.6%
Should I Get A VA Loan Or A Regular One?
VA loans tend to offer way more benefits for borrowers than commercial loans. They have lower interest rates and in most cases, you don’t need a down payment. Also, if interest rates drop, you can use a VA interest reduction loan (IRRRL) to get a better one.
Can I Use My VA Loan To Buy A House For My Son?
The short answer is no. VA loans are meant for veterans and active-duty military members, but they are also meant only for primary residences. What all that means is: You can only get a VA loan for a house you are going to live in.
Can I Buy Land With A VA Loan?
It is possible, only if you build your home there simultaneously. You cannot use a VA loan to only buy land, even if you plan to build a house there in the future.
Can I Use My VA Loan Multiple Times?
There is no limit on how many times you can use your entitlement to a VA loan. However, keep in mind the funding fee for subsequent uses of the loan increases from 2.3% on the first time, to 3.6%.
Can I Rent My House If I Still Have A VA-backed Mortgage?
VA loans cannot be used to buy rental or investment properties, however, once you’ve lived there, you can rent them to someone else.
VA loans are one of the best options for those who qualify since they offer better terms and conditions. Also, the requirements are easier to meet. If you are still not sure which type of loan will work the best for you, take a look at this complete guide to the article “Mortgage loans for first time buyers -The complete guide” with all you wanted to know about mortgages.
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