A VA Loan is a great program designed to assist those that have served our country honorably, secure a mortgage. The VA helps servicemembers, veterans, and eligible surviving spouses finance their dream home. A VA Loan is provided by private lenders, such as banks and mortgage companies. The VA then guarantees a portion of the loan which allows the lender to offer more favorable terms.
VA loans offer several advantages
- $0 down payment
- No minimum credit score requirement
- Does not require MI (Mortgage Insurance)
- VA funding fee can be financed into the loan
- The VA benefit can be reused
- Closing costs are capped
- Closing costs may be paid by the seller
- Never a prepayment penalty
- The VA provides assistance if the borrower has difficulties making a payment
- VA loans are assumable, as long as the borrower assuming qualifies
How many times can a VA benefit be used?
Eligible service members have the VA benefit for life, however, a veteran can only have one VA loan at a time. Even if a veteran has used most or all of their entitlement, that entitlement can be fully restored once the previous loan has been paid off.
Who can assume a VA loan?
VA loans can be assumed my anyone occupying the property that has qualifying credit and income. You do not need to be a Veteran to be able to assume a VA loan. If the person assuming a VA loan is not a Veteran, then the Veteran will lose their remaining entitlement because the benefit stays with the mortgage. To assume a VA loan, a .5% funding fee must be paid by either the original owner or new borrower.
There is no maximum loan amount for VA; however, VA does limit the amount that they will guaranty. In most of the country, Veterans can borrow up to $453,100 without a down payment. A down payment allows this amount to increase. Loan limits vary by county: so, to know what a Veteran can borrow, it is important to look up your specific county limits.
Who is eligible for a VA Home Loan?
- Veterans and service persons who have served 181 days during peacetime
- Anyone who has served since August 2, 1990, can qualify if they served 24 months of continuous active duty, or 90 days that you were called to active duty.
- Veterans who have served during Korea, Vietnam, or World War II, if they served for 90 days and were honorably discharged.
- Those that have completed 6 years is the National Guard or Selected Reserve
- A spouse, that did not remarry, of a Veteran who passed while in service
Generally, all Veterans obtaining a VA home loan will have to pay a funding fee. The funding fee is a percentage of the loan amount which varies based on the type of loan, military category, 1st time or subsequent user, and the amount of down payment. The funding fee can be financed into the loan or paid in cash at closing. Below is a table showing the funding fee percentages for the respective scenarios.
There are situations where a borrower would not have to pay a VA funding fee; which are listed below:
- If the veteran is receiving VA compensation for a service-connected disability or
- If the veteran would be entitled to receive compensation for a service-connected disability if they did not receive retirement or active duty pay or
- The surviving spouse of a veteran who died in service or died from a service-connected disability.
Interest Rate Reduction Refinance Loan
An IRRRL is a “VA to VA” loan, meaning the borrower is refinancing a VA guaranteed loan into a new VA loan. The goal of an IRRRL is to reduce the monthly payment and lower the interest rate on an existing VA loan. Generally, no appraisal, credit information or underwriting is required to complete an IRRRL; although, some lenders may require an appraisal and credit report. All fees and charges incurred by the refinance can be rolled into the cost of the new VA loan.
Cash Out Refinance
A cash-out refinance is a program that allows the borrower to cash-out the equity that they have in their home up to 100% of the appraised value of the home. For example, if the borrower owes $80,000 on their current mortgage they can do a cash out refinance for a $100,000 loan on a home worth $100,000 which gives the borrower $20,000 in cash.
Native American Direct Loan
This program gives Native American Veterans and their spouses the opportunity to obtain a VA guaranty on Federal trust land. This guaranty can be used to finance a purchase, construction, home improvements or to refinance a previous NADL.
- No down payment
- Easy to qualify
- No PMI cost
- Low closing costs
- $424,100 loan maximum limit in most areas; subject to change per county
- Re-usable benefit