10 Things to Know Before Applying for a VA Loan
Veterans Administration (VA) loans are one of the most common types of loans used in today’s financial market. They offer many benefits to eligible borrowers and are mainly used to purchase, refinance and even improve a home.
Here are 10 important things to know before applying for a VA loan:
1) This is a secured loan. A Veterans Administration loan is a guaranteed loan from the US Department of Veterans Affairs, which means that the lender providing financing to the borrower is protected from loss if the buyer defaults on the loan.
2) Not everyone can qualify for a VA loan. One must be a veteran or active duty personnel to be eligible for DVZ financing. Veterans can apply for VA financing at any mortgage lender that participates in the VA home loan program, and a valid Certificate of Eligibility (COE) must be presented along with credit and income requirements to qualify for the loan .
3) Offers lower than usual rates to eligible veterans. With a VA loan, the borrower typically receives a lower interest rate than is typically offered with other types of loans. Also, a VA loan can be used to get lower interest rates when refinancing up to 100% loan to value.
4) Offers more flexible lending guidelines. The minimum credit score accepted for a VA loan is around 620, but depending on unique circumstances, some lenders may accept a credit score as high as 550. Also, although other types of loans may offer similar credit score guidelines, a credit score of 620 for a conventional or FHA loan will have more obligations on the borrower and require a larger down payment.
5) No Private Mortgage Insurance (PMI) is required for VA loans and the program can also be used to eliminate Mortgage Insurance (MI) on other loans. For example, a person can refinance an existing loan by changing their credit program to a VA loan, therefore eliminating PMI and reducing the monthly mortgage payment. Although mortgage insurance is not required for VA loans, the VA charges a financing fee to issue a guarantee to a lender against a borrower’s default on a mortgage; however, unlike PMI, which is present for the entire life of the loan on other types of loans such as FHA and USDA, the financing fee (FF) can be paid up front in cash by the buyer or seller, or it can be financed into the loan amount. There are also lender-paid financing fee loan options available with VA financing if requested as low as 3.3%, and some veterans may even be exempt from paying a financing fee on their loan (additional documentation required ).
6) Veterans Administration loans often require no down payment. Usually, a VA loan does not require a down payment, but if the loan amount exceeds the VA limit for the county where the property is located, the borrower will need to make a down payment. The down payment will vary depending on the remaining amount of the borrower’s VAT entitlement and the purchase price or assessed value of the home and will be a percentage of the difference between the two.
7) A person may qualify for more than one Veterans Administration loan at the same time. There is no limit to how many VA loans you can have at one time as long as there is VA eligibility remaining to be used. For loans over $144,000, the entitlement amount is usually 25% of the VA financing limit for the county where the property is located.
8) No prepayment penalty on Veterans Administration loans. Any VA loan can be paid off in full at any time, which is a great advantage as it can help a person save huge amounts of money on interest.
9) The grace period for bankruptcies, foreclosures or short sales is shorter on Veterans Administration loans than other types of loans, such as conventional or FHA. In most cases, a person can qualify for a DVZ loan after 2 years of filing for bankruptcy or foreclosure, as opposed to 4 years for bankruptcy and 7 years for foreclosure on a conventional type of loan.
10) Can only be used to purchase a primary residence. VAT benefits cannot be used to purchase a second home or investment property; however, it can be used to refinance a VA loan that was previously taken out as a primary residence to reduce the interest rate (VA IRRL).