A VA home loan is a mortgage issued by a private lender that is guaranteed by the Veterans Administration (VA). Because the VA insures the loan and protects lenders from loss, it's easier for eligible service members and their families to qualify. Veterans can obtain a Certificate of Eligibility when buying a new home or pursuing a cash-out refinance loan and can then obtain their VA loan through a lender of their choosing.
The best VA loan lenders have many advantages, including the ability to purchase a home with a low credit score, no down payment, and no private mortgage insurance. But there are some fees you'll have to pay if you use one to buy a home.
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VA loans are issued by private lenders that rely on a guarantee made by the Veterans Administration that protects them in case of default. The VA guarantees a number of loan types including:
In addition to guaranteeing loans made by banks, credit unions, and online lenders, the Veterans Administration also offers some more direct assistance to eligible service members. Direct sources of homebuying help include adapted housing grants for veterans to buy, build, or adapt a home to account for a service-connected disability. There's also a Native American Direct Loan Program that helps eligible Native American veterans buy, build, or improve homes on Federal Trust land.
Veterans loans often have lower interest rates and easier qualifying requirements than conventional mortgages not guaranteed by the VA. Eligible service members and their families can qualify for a loan with no down payment and don't have to pay private mortgage insurance (PMI). PMI is required on other types of loans including FHA Loans, USDA Loans, and conventional loans with a down payment below 20%.
However, the VA does charge a one-time VA funding fee, which varies depending on your service record, whether you've obtained a VA loan before, and the size of your down payment. The funding fee is between 1.4% and 3.6% of the amount you're borrowing. However, veterans receiving disability compensation are exempt from this fee.
Veterans who meet length-of-service requirements, active duty service members, certain current or former National Guard or Reserve members, and surviving spouses of veterans who passed away on active duty may all be eligible for a VA loan. You can check www.ebenefits.va.gov or call 877-827-3702 to determine if you meet the service history requirements.
In addition to your service record, there are additional requirements, which include:
Many different banks, online lenders, and credit unions offer VA loans. To find the right lender:
It is best to get quotes from several mortgage lenders as each can set their own terms and interest rates as long as they conform to broad Veterans Administration guidelines for issuing loans.
A VA loan is a good option if:
There is no minimum credit score requirement set by the Veterans Administration for VA loans. Lenders who offer these loans, however, may set their own minimum score limits.
VA loans do not require a down payment unless the lender requires one or the purchase price of the home exceeds the reasonable value of the property. Unlike most other types of loans, including conventional loans, FHA loans, and USDA loans, you don't have to pay private mortgage insurance even if you put down a low down payment or no down payment.
The biggest drawback to VA mortgage is that you're required to pay an up front funding fee that's calculated based on a percentage of the loan amount. The fee varies depending on several factors, including the size of your down payment, but it is waived if you receive VA disability compensation.
A funding fee is an up front one-time fee you have to pay when obtaining a VA mortgage loan. It's between 1.4% and 3.6% of the loan amount and can be included in the loan so you pay it off over time. You do not have to pay this fee if you receive disability compensation from the Veterans Administration.
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