When exploring mortgage options, most homebuyers tend to look at conventional and FHA loans first. While those are popular, excellent loans for many homebuyers, don’t underestimate the benefits of VA loans. If you qualify for a VA loan, you could secure a new home with a low interest rate and zero down payment. So how do VA home loans work?
How Do VA Home Loans Work?
Since its start in 1944 as part of the World War II GI Bill, the VA loan program has guaranteed more than 22 million loans and helped countless people become homeowners, according to Debt.org. In fact, some 611,000 buyers relied on VA financing to purchase properties valued at more than $161 billion in fiscal 2018.
How do VA home loans work? To answer that question, you’ll need to explore the advantages that VA loans offer, who can use them, and what sorts of properties they can help you purchase.
What Advantages Do VA Home Loans Offer?
VA loans are issued by private lenders and guaranteed in part by the U.S. Department of Veterans Affairs (VA). In return for this government backing, which decreases their risk, lenders extend favorable terms to borrowers who meet the loan program’s requirements. As SmartAsset indicates, VA home loans come with several advantages:
- With 100 percent financing available, no down payment is needed.
- There is no minimum credit score, and credit requirements are relaxed.
- There is no upper limit on the size of the loan.
- Borrowers are not required to get mortgage insurance.
- The VA forbids prepayment penalties.
- The VA limits closing costs.
- Borrowers who run into financial trouble can turn to the VA for assistance.
Who Is Eligible for a VA Home Loan?
VA loans aren’t an option for everyone. They are a benefit earned with service. Generally you have to be a qualifying active-duty service member, a member of the Reserves or National Guard, a veteran, or a military spouse to be eligible for this form of financing. The requirements vary depending on your service. To find out if you are eligible, review the VA’s list of eligibility requirements.
What Is Involved in Qualifying for a VA Loan?
Simply being eligible for a VA loan isn’t enough to secure one. You also have to demonstrate that you have the credit and income to qualify for the loan that you’re seeking. As The Mortgage Reports explains, the lender will review your credit, income, and your debt-to-income ratio before approving you for a VA loan.
What Can a VA Home Loan Be Used For?
VA loans can only be used to purchase a home in the United States, its territories, or its possessions that will serve as your primary residence. However, as MilitaryBenefits.info notes, that still leaves a wide range of possibilities:
- Buying an existing home or condo
- Buying a modular or manufactured home
- Buying a new-construction home
- Buying a multi-unit property, assuming the borrower occupies one of the units
- Buying a fixer-upper in need of simultaneous purchase and renovation
- Refinancing your existing home
How Do You Get a VA Home Loan?
Military.com describes the process that most buyers will need to complete if they hope to secure a purchase loan:
- Choose a lender. Look for a VA-approved lender who is familiar with the VA loan process. Select someone reputable who offers good service and is willing to answer questions and offer expert insight.
- Obtain a Certificate of Eligibility (COE). The COE serves as evidence of your eligibility. You can obtain it yourself online or through the mail. Alternately, your lender can request it.
- Get prequalified. While prequalification is optional, it’s helpful. It gives you a rough idea of how much of a mortgage you are likely to qualify for and provides a head start on the approval process.
- Find the home that you want. Shop around to find the home that suits your needs. The VA does demand that the property meet certain requirements, so working with a real estate agent familiar with the VA home loan program can be helpful. When you find the right property, sign a purchase agreement that includes the VA escape clause.
- Apply for a loan. With contract in hand, return to your lender and complete the application process. The lender will order a VA appraisal and begin evaluating your application.
- Attend closing. During closing, you’ll sign your mortgage documents and take formal ownership of the home.
Are you interested in working with a knowledgeable lender who can help you get the greatest benefit out of the VA home loan program? Turn to PrimeLending Twin Cities. We offer a wide array of loan programs, so we can match you with the right loan for your unique needs and goals. Contact us today to discuss the possibilities.