Home ownership is a huge part of the “American Dream,” and few would argue that there is anyone more deserving of realizing that dream than the men and women who unselfishly serve to protect our country. The VA lending program is part of the original GI Bill that has enabled over 22 million military service members to secure loans and obtain home ownership since 1944.
Here are some basics of VA home loans to understand in order to take advantage of this powerful and flexible program.
What Is a VA Loan?
VA loans are government-backed loans available to military service members, veterans, and eligible surviving spouses. These loans are not from the government. Just like with conventional loans, potential borrowers need to go to a qualified mortgage lender and apply for a loan. The US Department of Veterans Affairs (VA) backs the loan with a guarantee to the lender that the VA will repay a portion of the loan amount in the event of borrower default. This helps borrowers to get lender approval and secure better loan terms and rates.
What Are the Benefits of a VA Loan?
There are some wonderful benefits that come with VA loans that make them very attractive to potential borrowers. Some of these benefits are:
- No down payment
- No mortgage insurance
- Low interest rates
- Lower closing costs
- No prepayment penalty
Borrowers who have lower credit scores can still usually get approval for a VA loan, sometimes even if they have experienced a foreclosure or short sale in the past.
How Do I Know if I’m Eligible for a VA Loan?
Active service members, veterans, and surviving spouses are eligible for VA loans. A few caveats to keep in mind are: service members must be in good standing or discharged in good standing from the military, surviving spouses cannot be remarried when they apply, and the loans do not extend to other family members such as siblings or children.
The eligible borrower will need a COE (Certificate of Eligibility) or DD-214 (Certificate of Release or Discharge from Active Duty) showing character of service, as well as other documents traditionally needed for a loan application such as bank statements and employment information.
To be eligible for a VA loan the property must also be used as the eligible borrower’s primary residence, not as a vacation home or investment property.
How Much Can I Get Approved For?
Eligible service members can typically get approved for loans up to $417,000 with their full entitlement without needing to pay any down payment (sometimes more in more expensive areas of the country).
A VA entitlement is the amount of money the VA will guarantee in the event of borrower default; that is the limit you can borrow before you need to factor in a down payment out of pocket. It is possible to get a higher loan amount if you have money for a down payment and use that in addition to using your entitlement.
Fees Associated with VA Loans
VA loans are subject to a mandatory VA funding fee of up to 3.3% of the loan amount that may be paid in cash or rolled into the loan amount. Veterans on 10% or greater VA disability compensation are exempt from the funding fee.
Other common loan fees such as appraisals, credit reports, title searches, and title insurance cannot be waived or rolled into the loan. However, there is a limit to how much borrowers can be charged for these fees. The seller may also pay these on behalf of the borrower, but this is not required of the seller; it would be negotiated by the real estate agent on the borrower’s behalf.
For additional information or questions regarding VA loans you can check the US Department of Veterans Affairs website or call VA Benefits toll free at 1-800-827-1000.