If you’re a United States veteran and you’re looking to buy a home, consider getting a VA loan. These unique loans are guaranteed by the Department of Veteran Affairs (or VA) and are offered to service men and women and their spouses. They come with multiple benefits, including zero money down, no mortgage insurance required, great rates and terms, and more! Is a VA loan right for you? Read on to find out!
The Benefits of a VA Loan
The following are just some of the benefits of a VA Loan:
No down payment – Most mortgage products require some type of down payment, but with VA loans, no down payment is required! This is great if you don’t have the cash to afford a large down payment, or if you want to save that money for other uses.
No mortgage insurance – With other mortgage products, if you’re not paying at least a 20% down payment, chances are you’ll have to pay mortgage insurance. This is an additional expense that can add up each month. However, with a VA loan, you don’t have to pay mortgage insurance! This is because VA loans are guaranteed by the government, which makes lenders feel more secure.
Great rates and terms – Another benefit of being guaranteed by the government – VA loans have great rates and terms! And sometimes they can be easier to qualify for than conventional mortgages. Be sure to shop around to find the best rate!
No prepayment penalty – Paying off your mortgage early can help you save hundreds or even thousands in interest, but some mortgage products have prepayment penalties. With VA loans, you don’t have any prepayment penalties, which means you can make extra payments and pay off your mortgage sooner!
Closing Costs – There’s a limit on how much you have to pay for closing costs, and closing costs can be paid by the seller! Both of these benefits can help keep you from paying more than you want to in closing fees.
Assumable – VA Loans are assumable, as long as the person assuming the loan meets the requirements. Not every type of mortgage product is assumable, but having one that is can be a huge help in the right situations.
The Steps of a VA Loan
In many ways, VA loans are similar to conventional mortgages, but there are some additional steps you should take to take advantage of their benefits. Here are the steps of a VA loan, as outlined by the US Department of Veteran Affairs:
Get preapproved – Getting a preapproval is an important step in planning your budget and knowing how much of a mortgage you can afford. Compare different VA approved lenders to find the best rate and terms for you.
Confirm eligibility – In order to take advantage of a VA loan, you need to confirm your eligibility by obtaining a Certificate of Eligibility (COE) from the VA. You can either do this yourself or have your lender do it for you. Lenders may be able to obtain your COE in just a few seconds, making this a great time-saving option. If you would like to obtain your COE yourself, you can either apply by mail with form 26-1880 (or form 26-1817 for spouses) or online by clicking here.
Find an agent – Having your own real estate agent lets you have someone who is dedicated to finding the right home for you. They can help you through the homebuying process and, once you find a home you like, can help you develop a purchase agreement. Be sure your purchase agreement includes a VA Option Clause, which voids the contract in the event that you are unable to obtain VA-guaranteed financing.
Get an appraisal – Appraisals help determine the value of a home and are used by lenders to make sure the house is sufficient collateral for the loan. You should also consider getting a home inspection done, which can highlight any issues the house might have, such as water damage, structural problems, or electrical work.
Handle the VA funding fee – The VA funding fee can either be paid as an upfront fee, or it can be included into the cost of the loan. Decide which option works best for you. If you currently receive disability compensation from the VA, you may be exempt from having to pay the fee.
More About the VA Funding Fee
VA loans don’t require down payments or mortgage insurance, but they do have a VA funding fee. This fee is paid to the Department of Veteran Affairs, which guarantees VA Loans. This fee helps ensure that VA loans can continue to be offered. The amount of the fee depends on whether or not you put down a down payment (more money down means less of a fee) and whether or not it’s your first VA loan (the fee is less if it’s your first time). Normally, the fee is 2.15% of the loan amount (for regular military borrowers with no down payment and no previous VA loans), but a chart with all the fees is included below. Just as an example, if your loan is for $200,000 and you have a 2.15% funding fee, the amount you would have to pay is $4,300. You can choose to include the funding fee in the cost of your loan, but if you do, your monthly payments will increase. In some cases, if you receive disability compensation from the VA, you may be exempt from paying the fee.
|Regular Military or Reserve/National Guard||Down Payment||Fee if First VA Loan||Fee for Subsequent VA Loans|
|Military|| 0% – 4.99%
5% – 9.99%
10% or higher
|Reserve or National Guard|| 0% – 4.99%
5% – 9.99%
10% or higher
Cooperate with your Co-Borrowers
VA Loans can be a bit trickier when it comes to co-borrowers since the program is only intended for veterans and their spouses. However, if you want to list someone who isn’t your spouse or another veteran on your VA loan, there are some options available. You will probably be required to make a down payment, and you’ll have to find the right lender to work with you.
The Value of VA Loans
You don’t have to be a first-time home buyer to get a VA Loan. Even if you’ve had a foreclosure or bankruptcy, you may still be eligible. With their multitude of benefits, VA loans are definitely worth considering. Since they were developed in 1944, VA loans have been used by over 24 million service members. Could you be next? Compare rates for VA loans today!