Veterans Administration (VA) loans are some of the most common types of loans used in today’s financial market. They offer many benefits to eligible borrowers and are used primarily to purchase, refinance, and even improve a home.
Here are 10 important things one should know before applying for a VA loan:
1) It is a secured loan. A Veterans Administration loan is a loan guaranteed by the US Department of Veterans Affairs, which means that the lender providing financing to the borrower is protected against loss if the buyer defaults on the loan.
2) Not everyone can qualify for a VA loan. One must be a veteran or active duty personnel to qualify for VA financing. Veterans can apply for VA financing with any mortgage lender that participates in the VA home loan program, and a valid Certificate of Eligibility (COE) must be presented along with credit and income requirements to qualify for the loan.
3) Offers lower than usual rates to eligible veterans. With a VA loan, the borrower generally receives a lower interest rate than is typically available with other types of loans. Additionally, a VA loan can be used to obtain lower rates on refinances of up to 100% of the loan value.
4) Offers more flexible credit guidelines. The minimum accepted credit score for a VA loan is approximately 620; however, depending on unique circumstances, some lenders may accept a credit score as low as 550. Also, while other types of loans may offer similar credit score guidelines, a credit score of 620 for a conventional or FHA loan will have more obligations to pay. with the borrower and will require a larger down payment.
5) Private Mortgage Insurance (PMI) is not required on VA loans, and the program can also be used to remove PMI on other loans. For example, one can refinance an existing loan by changing their loan program to a VA loan, thus eliminating PMI and lowering the monthly mortgage payment. Although mortgage insurance is not required for VA loans, the VA charges a financing fee to issue a guarantee to a lender against a borrower’s default on a mortgage; however, unlike PMI, which is present for the life of the loan on other types of loans such as FHA and USDA, the buyer or seller can pay the financing fee (FF) up front in cash, or can be financed in the amount of the loan. There are also lender-paid financing fee credit options available on VA financing if requested up to 3.3%, and some veterans may even be exempt from paying a financing fee on their loan (additional documentation required) .
6) Veterans Administration loans often do not require a down payment. A VA loan generally does not require a down payment, however, if the loan amount exceeds the VA limit for the county where the property is located, the borrower will be required to make a down payment. The down payment will vary based on the remaining amount of the borrower’s VA entitlement and the purchase price or appraised value of the home and will be a percentage of the difference between the two.
7) One may be eligible for more than one Veterans Administration loan at the same time. There is no limit to the number of VA loans one can have at one time, as long as there is remaining VA entitlement to use. For loans greater than $144,000, the entitlement amount is typically 25% of the VA funding limit for the county where the subject property is located.
8) There is no prepayment penalty on Veterans Administration loans. Any VA loan can be paid in full at any time, which is a huge advantage as it can help save huge amounts of money on interest.
9) The preparation period for bankruptcies, foreclosures, or short sales is shorter for VA loans compared to other types of loans, such as conventional or FHA. In most cases, one can qualify for a VA loan after 2 years of filing bankruptcy or foreclosure on their home as opposed to a 4 year bankruptcy and 7 year foreclosure period on a home loan. conventional type.
10) Can only be used to purchase a primary residence. VA benefits cannot be used to purchase a second home or investment property; however, it can be used to refinance a VA loan previously occupied as a primary residence to lower the interest rate (VA IRRL).