The most popular type of loan in today’s finance market is the Veterans Administration (VA), loans. They have many benefits for eligible borrowers. They can be used to buy, refinance or improve a home.
Here are 10 things you should know before applying to a VA loan.
1) It is a guarantee loan. A Veterans Administration loan is guaranteed by the U.S. Department of Veterans Affairs. It means that the lender providing financing to the borrower will be protected against loss if they fail to repay the loan.
2) Not all people are eligible for a VA loan. To be eligible for VA financing, one must be a veteran or active-duty service member. VA financing can be applied for by veterans with any mortgage lender participating in the VA home loan programme. A valid certificate of eligibility (COE), credit and income requirements must all be provided in order for the loan to be approved.
It offers veterans with qualifying status lower than usual rates. A VA loan usually offers a lower interest rate than other types of loans. Refinances of up to 100 percent can also be made possible with a VA loan.
It has more flexible credit guidelines. A VA loan requires a minimum credit score of 620. However, some lenders will accept credit scores as low as 550 depending on the circumstances. Even though there may be similar loan types, a credit score below 620 for a Conventional loan or FHA loan will result in more obligations and a higher down payment.
5) VA Loans do not require private mortgage insurance (PMI). The program can also be used for eliminating Mortgage Insurance (MI). Refinance an existing loan can be done by changing the loan program to a VA Loan. This will remove the PMI and lower the monthly mortgage payments. The VA does not require mortgage insurance for VA loans. However, the funding fee is charged by the VA to guarantee a lender against a borrower defaulting on a mortgage. Unlike PMI (which is required for all types of loans like FHA or USDA), the funding fee (FF), which can be paid upfront in cash or financed into the loan amount, is payable by either the seller or buyer. You can also request VA financing credit from a lender if you are able to pay 3.3%. Additionally, some veterans may not have to pay a funding fee (additional documentation necessary).
6) Veterans Administration loans don’t usually require a downpayment. The down payment for a VA loan is not usually required. However, if a loan amount exceeds the VA limit in the county where the property’s location, the borrower will need to make a downpayment. The borrower’s VA entitlement and the value of the home will determine the amount of the down payment. This percentage will be determined by the difference.
7) A person may be eligible to receive more than one Veterans Administration loan simultaneously. There is no limit to how many VA loans one may have at once, as long as there is an entitlement. Loans above $144,000 are entitled to 25% of the VA financing limits for the county in which the subject property is located.
8) There are no prepayment penalties on Veterans Administration loans. The VA loan can always be paid in full. This can make it a tremendous advantage because it can help you save a lot on interest.
9) Veterans Administration loans have a shorter seasoning period than other types of loans like Conventional and FHA. Most people can get a VA loan within 2 years of filing for bankruptcy, or foreclosing their home. Conventional loans take 4 years and Conventional loans take 7 years.
10) The VA benefits can only be used for the purchase of a primary residence. VA benefits are not available for purchase of a second home, investment property or a third residence. However, you can refinance a VA loan that was previously occupied as a primary residence to lower your interest rate (VAIRRL).