The VA Loan: Military Benefits for Home Ownership
If you have served for a while, you’re probably pretty familiar with the VA loan, or at least heard it mentioned around your unit. If not, a little background would probably help.
The Veterans Administration, or VA, helps service members, veterans, and eligible surviving spouses become homeowners. They do this by providing a home loan guarantee benefit and other housing-related programs to help you buy, build, or repair a home for your personal occupancy.
Where to get a VA loan
VA home loans are provided by private lenders such as banks and mortgage companies; the VA guarantees a portion of the purchase price, reducing the risk for the lender that should result in the lender providing you with more favorable terms. This means lower interest rates compared to conventional, no mortgage insurance, and sometimes lower lender fees. We highly recommend you consult a lending professional to guide you through the process.
The different VA programs
There are several specific programs within the VA: purchase loans, cash-out refinance, interest rate reduction refinance loan (IRRRL), Native American direct loan (NADL), and adapted housing grants. With a purchase loan, the VA guarantees up to 25 percent of the purchase price in most situations, so you are not required to provide a down payment, avoid mortgage insurance, and receive interest rates unmatched by comparable conventional loan scenarios.
The VA’s cash-out refinance loan is for homeowners who want to take cash out of their homes’ equity to take care of concerns like paying off debt, funding school, or making home improvements.
The IRRRL, sometimes referred to as streamlined refinance, can help you lower your interest rate on your existing VA loan.
The NADL 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 disabilities purchase or build an adapted home, or to modify an existing home to accommodate their disabilities.
The VA guarantee
The guarantee the VA provides allows lenders to offer you with more favorable terms, and there are numerous advantages to using a VA loan: no down payment as long as the sales price doesn’t exceed the appraised value, no private mortgage insurance premium requirement, limits on closing costs, some of which may be paid by the seller. The lender also cannot charge you a penalty if you pay off the loan early.
There are several misconceptions out there about using the VA loan, but please remember that you can use the VA loan more than once. There are no restrictions on whether or not you are a first-time homebuyer, and VA loans can be assumable as long as the new buyer qualifies for the VA loan via the servicer according to guidelines of lender and the VA.
How to apply for a VA loan and what you can buy
The first step, which you can work through with your VA-approved lender, is applying for and receiving your valid certificate of eligibility (COE). You must have suitable credit, sufficient income, and a COE to get a VA-guaranteed home loan. The home must be for your primary residence and cannot be used to purchase an investment property.
The loan can be used to buy a home or a condominium unit in a VA-approved project (double-check this with your lender before making an offer). You can use it to build a home, purchase and improve a home, including by installing energy-related or energy-efficient improvements. You can buy a manufactured home and/or lot, although it can be more difficult to locate lenders offering this type of product.
One final note. There are loan limits, depending on where the property is located. The VA does not set a cap on how much you can borrow to finance your home, but there are limits on the amount of liability VA can assume, or guarantee, which usually affects the amount of money an institution will lend you.
The loan limits are the amount a qualified veteran with full entitlement may be able to borrow without making a down payment. Loan limits vary by county since the value of a house depends in part on its location. You can exceed the county loan limit by providing 25 percent of the difference between the purchase price and the county loan limit to make up the difference.
The basic entitlement available to each eligible veteran is $36,000. Lenders will generally loan up to four times a veteran’s available entitlement without a down payment, provided the veteran is income- and credit-qualified and the property appraises for the asking price. Interest rates are subject to change due to market fluctuations. You can check the entitlement for your county by visiting the VA website.