When buying your home, there are a variety of different mortgage loans to consider, and choosing between them all can be difficult. For veterans who were honorably discharged and active duty personnel, a VA Loan provides an easy option that is convenient and helps you get a nice home for you and your family. In fact, over 600,000 VA loans were used in 2018, accounting for over $160 billion dollars worth of mortgage loans.
A VA Loan is still offered by private lenders, but has some influence from the United States Government too, as the Department of Veterans Affairs backs a portion of the loan, helping veteran’s get friendly terms on a loan for their home.
The biggest benefit of a VA loan is that there is no down payment required, paired with the more friendly terms for credit and income, making it much easier to get a loan. The barrier to entry is much easier, helping veterans get a nice home for their families.
An important aspect of VA loans are the entitlements, which is an amount the VA guarantees to payback on your behalf should you default on your loan. Generally, the basic entitlement is $36,000, with the usual maximum loan amount being $144,000, that’s like having a 25% down payment. However, it’s important to know that that’s not an official maximum loan amount, and depending on your situation, you can get more. $144,000 is a nice amount for a home in some areas, but not all, and that’s where the bonus entitlement program comes in. If you’re eligible, a bonus entitlement will grant you as much as 25% of up to $726,525 in certain counties, but that’s not all you’re limited to on your loan. Because the maximum loan amount is whatever the lender is willing to offer, the VA sets limits on what they’re willing to work with, meaning anything above is on you to deal with.
As military personnel, there are still particular requirements to be aware of when looking into a VA loan. Ways to qualify include:
-90 consecutive days of service during wartime
-181 days of active service during peacetime
-6+ years of active service as a member of National Guard or Reserves
-Significant other of a service member who passed away in the line of duty or due to a disability acquired in the line of duty.
Is there Mortgage Insurance?
Another major benefit of VA loans is the fact that you don’t have to worry about PMI. While other mortgages that offer low down payments, VA loans don’t have that requirement, saving you thousands over what you might otherwise pay on a low down payment mortgage. This also means significantly lower monthly payments, making it even easier to buy a new home with a VA loan.
Additional Funding Fees
While VA loans don’t have down payment requirements or PMI, there is still a funding fee to consider, helping to balance the cost to the taxpayer. If you’re using your first VA loan and putting no money down, you’ll have a 2.15 percent (of the loan amount) fee to pay. If you do make a minimum 10% down payment, you can reduce that fee to 1.25%. Those fees may be a bit hire for Reservists and National Guard members over active-duty members. And, if you’re using the VA loan for the second time, then your fee is 3.3% with no down payment.
Refinancing a VA Loan
Remember, if you already have an active VA loan, but find yourself in a better financial situation, you can always refinance your existing loan to get a more favorable interest rate. No cash is required upfront, as all fees are rolled into the new loan thanks to the Interest Rate Reduction Refinance Loan.
Some requirements to consider, while there are usually some exceptions to the rule, is you generally need to move into your home within 60 days of purchase and actually use the home as your primary residence. Investment properties and second homes aren’t available for purchase with VA loans. And, while there is no official minimum credit score required, you’ll generally want to have a minimum of 620. While there is a lot of leniencies, it is still a loan, and you need to prove that you’ll be able to pay back the loan and other heavy debts won’t interfere.
VA loans can be difficult to fully understand, but we hope this was a good start to helping you figure out some of the nuances of a VA loan, and whether it’s for you.