If you are ready to purchase a home you be starting to think about your mortgage loan choices. While there are several different options, if you are a United States Veteran, you may want to consider a VA loan for your home purchase. If you have never heard of a VA loan you may be wondering what exactly it is. To put it simply, a VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs, designed to offer long-term financing to eligible American veterans or their surviving spouses. Furthermore, the Department of Veteran Affairs guarantees these loans, protecting mortgage lenders from loss if the homebuyer fails to repay the loan. Think you may be eligible for a VA loan? Read on to find out more!
First, What Are the Advantages of a VA Loan?
- In most cases, no down payment is required.
- VA Loans give homebuyers more flexibility in negotiating interest rates.
- No mortgage insurance premiums are required on VA loans.
- VA loans put limitations on a buyer’s closing costs.
Can You Get a VA Loan?
As a homebuyer, you can qualify for a VA loan if you are an honorably discharged veteran, are currently serving on active duty, or have completed a total of six years of service in the National Guard or selected reserves. Some surviving spouses of veterans are also eligible if they have not remarried. If your Veteran spouse died after their military service, the VA must determine that the death was due to a service-connected disability, a process that will take two to three months.
What Do You Need to Do To Obtain a VA Loan?
The Department of Veteran Affairs sets forth five steps veterans must take when purchasing a home with a VA loan:
1. Apply for a Certificate of Eligibility (COE) either online or by submitting a “Request for a Certificate of Eligibility” (VA Form 26-1800) to the VA’s Eligibility Center. Not sure where to go? Your lender may be able to help you with this process. If the VA has sufficient data about your military service and eligibility, you can apply through a lender, as most have access to the Web LGY system. An Internet-based application, your lender can get a Certificate of Eligibility for you in minutes.
2. Decide if you want to buy a home or build one. When that decision has been made, negotiate the terms and sign a purchase agreement.
4. Apply to the lender for the loan while the VA appraisal is being completed and receive final approval after receiving the completed appraisal.
Expert tip: The process of getting a VA loan can take longer than a conventional mortgage. It is, however, an excellent alternative if little or no money is available for the down payment required to obtain a conventional mortgage. It is interesting to note that delinquency and foreclosure rates have remained relatively low for VA loans when compared to other common loan types.
How Much Money Can You Borrow for the Purchase of Your Home?
Fortunately for homebuyers, the VA does not set a limit on how much you can borrow to finance your home. However, since the VA guarantees the loan, there are restrictions on the amount of liability the VA can assume, which usually affects the amount of money a lender will lend you. According to www.benefits.va.gov, “the loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment.”The basic VA entitlement is $36,000, and in general, lenders will loan up to four times a Veteran’s available entitlement without requiring a down payment. And while loan limits are $417,000 in most regions of the country, loan limits can vary by county, since the value of a house depends in part on its location. Of course, this is all subject to whether the home buyer is income and credit qualified and whether the property appraises for asking price.
Once You Receive Your Entitlement, Does That Guarantee You Will Get a Loan?
Even though the loan is guaranteed by the VA and you have available entitlement, that does not mean you automatically qualify for a VA loan. It is up to a lender to decide if they will extend you a VA loan, however, lenders offering VA loans must comply with VA credit and income standards. To make this decision, a lender who writes VA loans will underwrite your mortgage based upon:
- Your ability to repay the mortgage – a review of your bank statements
- Your employment – a review of your earning statements and tax returns
- Your credit history – information from a credit report
Is Your Eligibility Reusable?
If you have already obtained one VA loan, you can get another one in some circumstances. If you have paid off your prior VA loan when you sold the property, you can have your eligibility restored. Additionally (on a one-time-only basis), if you paid your prior VA loan in full, you may have your eligibility restored when you still own the property. This allows you to use your eligibility to purchase a second home. Additionally, you can use your VA eligibility for refinancing up to 100% of your home's value without having to pay mortgage insurance.
Do All VA Loans Have the Same Repayment Schedule?
You can choose a VA loan with a repayment schedule that works best for your current situation. VA loans offer the traditional fixed 30-year loans. Additionally, if you are a retiree, one of the following options may be best for you:
- Graduated Payment Mortgage (GPM) - A mortgage on which the payment starts low and rises over time.
- Growing Equity Mortgage (GEM) - A fixed rate mortgage on which the monthly payments increase over time according to a set schedule without an increase in the interest rate, with the additional amount applied to the mortgage balance.
- Adjustable Rate Mortgage (ARM) - A mortgage in which the interest rate is fixed for a period of time and then reset periodically based upon a benchmark.
- Hybrid ARM – A mortgage which blends the characteristics of a fixed-rate mortgage and a regular adjustable-rate mortgage; has an initial fixed interest rate period followed by an adjustable rate period.
Still confused on which term is best for you? Ask a lender for advice on the best loan terms for your particular situation- contact us for suggestions on lenders near you!