What is a VA Loan?
A Veterans Affair (VA) loan is a home loan partially guaranteed by the U.S. Department of Veterans Affairs, and was designed to help finance homes for eligible members of the military, veterans and some surviving spouses. A VA loan is a great option for military members who qualify, because these mortgages do not always require a down payment and are often easier to qualify for than conventional loans.
A VA loan is guaranteed by the government, but made by qualified lenders such as banks or independent mortgage companies. The VA will appraise the property in question and, if approved, guarantees the lender against loss the in case of a default.
Potential borrowers must obtain a Certificate of Eligibility from the VA before applying for the loan, which can be applied for online, through a lender, or via mail.
So what makes a VA Loan different?
- A VA loan does not require a down payment if your loan amount stays within the VA loan limits, and about 90 percent of VA buyers don’t put any money down.
- VA borrowers can typically borrow up to $417,000.
- Borrowers can qualify with lower credit than necessary for conventional financing. VA lenders typically accept credit scores beginning at 620.
- There are no private mortgage insurance requirements. Typically, borrowers who put less than 20 percent down on a house are required to pay monthly mortgage insurance. However, VA buyers are required to pay a funding fee at closing time, which ranges from 0.5 percent to 3.3 percent of the loan, depending on the veteran’s service and loan type. If the buyer has a service-related disability, you may qualify to have their funding fee waved.
- You must occupy the property as your first home. VA loans are not designed for investment properties or second homes.
- There is no prepayment penalty. This means that if you choose to pay off your loan early, you won’t be charged a penalty fee. This could help you save thousands in interest over the life of your loan.
- If you use the VA loan to buy a condo, it must be on the VA’s list of approved condos. To make it onto the list, 50 percent or more of the building must be owner occupied. No more than 15 percent of owners can be behind on their Homeowners Association Fees. If the condos are newly constructed, 75 percent of units must be sold.
- Borrowers can increase their loan up to $6,000 for energy efficient upgrades. Improvements include solar heating and cooling systems, caulking, weather stripping and new insulation.
- VA loans are not a one-time benefit, and are not only for first time home buyers. You can qualify for a VA loan more than once, as long as you pay the original loan off each time.