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2014-12-08 16:30:54
What is a VA Loan?
Continuing our weekly series, we take an in-depth look at conventional loans.

For 70 years, the U.S. Department of Veteran Affairs has made flexible financing available to qualified veterans. Let’s look at the pros and cons of this program that is growing in popularity.Happy Veterans Day

 

Background

The U.S. Department of Veterans Affairs (VA) home loan guarantee program was created in 1944 to assist returning World War II soldiers.  The VA guarantees, in the case of a default, repayment to the lender of a specified percentage of each mortgage loan made to qualified veterans.  This repayment is called entitlement.  The veteran is not required to make a down payment if they have full entitlement, but must pay a funding fee. The amount of this fee depends on a number of factors, including whether the veteran makes a down payment and whether the veteran has had a VA mortgage in the past.

 Loan-Type-VA_1

Click to view entire List of Home Loans

 

Eligibility

Generally speaking, veterans, active-duty service members, current and former National Guard and Reserve members, and spouses are eligible. However, there are differing minimum active duty service requirements for different periods of time.  You can visit the VA website to see the Eligibility Requirements.  When applying for a VA home loan, you will also need to apply for a Certificate of Eligibility.

 

Pros

By far the biggest benefit of a VA loan is that there is no down payment on homes worth up to $417,000 – saving the qualified home buyer thousands of dollars.  No mortgage insurance is required, which also saves the veteran money up front and during the term of the loan.  For those veterans who have experienced a bankruptcy or foreclosure, there is only a two-year waiting period until they can get a new loan, versus 3 to 7 years for other types of loans.  Finally, a VA loan is fully assumable, which can make selling your home down the line much easier.

 

Cons

To fund the VA home loan program, borrowers are charged a mandatory funding fee, which isn’t charged on other types of loans.  However, this fee can be financed in the loan amount and doesn’t have to come out-of-pocket. Only primary residences may be financed and acceptable co-borrowers are limited. In addition, borrowers are required to have a specific amount of disposable, or residual, income, which is based on family size and the region in which the property is located.

 

Financing Options

There are a number of financing options available through the VA.

  • Transaction Types: purchase, refinance, and streamline refinance
  • Property Types: Single-family residences, 1-4 units, PUDs, and VA-approved condominiums
  • Interest Rate Types: 15- and 30- year fixed-rate and 5-year adjustable rate
  • Occupancy Type: Primary residences only
 
 
 
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