VA loans are managed and controlled under the State Department of Veteran Affairs. Private lenders normally give these loans to anyone who fits the definition of a veteran and the Department of Veteran Affairs acts as a guarantor either partially or fully. In this article, we analyze the most important things you need to know about the VA home loan. The ultimate goal is to avail enough knowledge and information to allow sound decision making when it comes to getting a VA mortgage. To understand this, we are going to lay out 5 essential data points regarding VA mortgages and VA loan benefits.
Who is eligible for VA loan benefits?
Just as the name suggests, all veterans are eligible. The American War Library defines a veteran as: any person who served for any length of time in any military service branch. This is the first and most important condition before being approved to continue with the loan application process. It is important to note that, reservists and National Guard members are also regarded as veterans.
Widows and widowers of military members who died while serving on duty are also regarded as veterans for the purposes of benefiting from the Dept. of Veteran Affairs. This does not only apply to retired members, but also the active-duty members, who qualify to apply for a VA loan after six months of service.
Different VA loan terms apply to the different categories of veterans depending especially on the length of time that the veteran was on active duty. The length, the activeness and the extent of duty to our country determine the terms of your VA loan.
These loans are meant to help those men and women who have retired or are still on active duty for the country to get homes of their own. Borrowers are required to submit an online form that proves eligibility, but it is not a hindrance to starting the application process.
What are the Application Prerequisites?
If you are eligible for a VA loan, the next thing you need to understand is the application process and the requirements. Unlike the conventional and FHA loans, these loans have relaxed requirements as they are meant to be an appreciation of the service to our country. Different private lenders have different requirements for the loans.
The borrower must prove beyond any reasonable doubt the ability to service the loan and have a smaller debt burden by the time of application. The VA does not have a set credit score minimum which the borrower must attain before being approved for VA loan benefits although most lenders require a score typically above a 620. The higher your credit score, the lower the interest rate assessed.
The VA loan is allowed not only for first time home buyers but also for our Veterans looking to buy their second or even third home. Keep in mind though a VA loan cannot be used to purchase an investment property.
The VA can assume part or full liability of the loan, depending on the amount of loan. The higher the loan amount, the higher the probability of the VA not assuming full liability. This automatically limits the amount borrowed and hence the value of the home bought. The average value of VA loans varies but the loan limits can vary by the different states and counties. The loan limit for most of the country for 2017 is $424,100.
What are the Costs of a VA Loan?
Generally, the VA loans allow you to make a much smaller down payment for the home and generally you have the option of a $0 down payment. However, they attract a funding fee that is paid prior to starting off the mortgage. This amount depends on the amount of the loan but is typically 2% of the loan amount. Another factor when looking at the funding fee is the type of service the veteran provided while serving our country. The type of service here meaning the length of time served on duty and the extent of service. For instance, if a veteran served in a foreign land or in war, he/she will get way much better terms including a very low funding fee, which is paid once.
The low costs act as an encouragement to the people serving the country, as the government shows that it will take good care of them, regardless of what happens to them.
However, the normal loan interest rates will apply depending on the different lenders, but on average they are normally lower than the conventional loans and the prevailing market interest rates.
What Happens in Case of VA Loan Default?
It may happen that, at the time of taking up the loan, a veteran had a well laid out plan of how he/she is going to service the mortgage but, unfortunately, for one reason or the other, one can no longer keep up with the payments. In such situations, the Dept. of Veteran Affairs intervenes to help out the borrower.
This help includes, negotiating with the financier on behalf of the borrower. This includes reviewing the payment plan, renewal of the loans with new terms and exploration of many other alternatives available to help the veteran keep up with the mortgage. The Department works out a way because at the end of the day, it may end up paying up the loan, since it is the guarantor of the loan. Veterans with difficulties in paying their VA loans are advised to reach out to the Dept. of Veteran Affairs for help.
VA Loan Benefits
Unlike the Federal Housing Administration (FHA), which requires a mortgage insurance premium (MIP), the VA loan does not require any insurance. This reduces the cost of servicing the loan, making it cheap for the veteran.
The ability to obtain a mortgage without any down payment is just one of the many VA loan benefits. No matter the category of service the veteran falls under, they can get a loan without having to pay any down payment. This is of great significance especially where a veteran has not saved any money yet for his/her home.
So, if you are a veteran by any criteria, and you do not own a home or have not thought about it for one reason or the other, waste no time, get a VA mortgage and start enjoying the VA loan benefits of serving the country. Talk to the Department of Veteran Affairs about obtaining your VA loan eligibility certificate. Once you have that in hand then you can start talking with VA home loan lenders in the market who can start working on your VA mortgage pre-approval.