10 things to know before applying for a VA loan
Veterans Administration (VA) loans are some of the most common types of loans used in today’s financial market. They offer many benefits to eligible borrowers and are used primarily to purchase, refinance, and even improve a home.
Here are 10 important things to know before applying for a VA loan:
1) It is a guaranteed loan. A Veterans Administration loan is a loan guaranteed by the U.S. Department of Veterans Affairs, which means that the lender providing financing to the borrower is protected against loss if the buyer defaults on the loan.
2) Not everyone can qualify for a VA loan. One needs to be a veteran or active duty personnel to qualify for VA funding. Veterans can apply for VA financing with any mortgage lender participating 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 generally receives a lower interest rate than is normally available with other types of loans. In addition, a VA loan can be used to obtain lower rates on refinances of up to 100% of the value of the loan.
4) Offers more flexible credit guidelines. The minimum accepted credit score for a VA loan is approximately 620; however, depending on unique circumstances, some lenders may accept a credit score as low 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 for with the borrower and will require a larger down payment.
5) Private Mortgage Insurance (PMI) is not required for VA loans, and the program can also be used to eliminate Mortgage Insurance (MI) on other loans. For example, one can refinance an existing loan by changing their loan program to a VA loan, thereby eliminating the 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 the borrower’s default on a mortgage; However, unlike the PMI, which is present for the life of the loan in other types of loans such as FHA and USDA, the financing fee (FF) can be prepaid in cash by the buyer or seller, or it can be financed in the loan amount. There are also lender-paid finance fee credit options available in VA financing if requested up to 3.3%, and some veterans may even be exempt from paying a finance fee on their loan (additional documentation required).
6) Veterans Administration loans often do not require a down payment. Generally, a VA loan does not require a down payment, however if the loan amount exceeds the VA limit for the county where the property is located, the borrower will have to make a down payment. The down payment will vary based on the remaining amount of the borrower’s VA entitlement and the purchase price or appraised value of the home and will be a percentage of the difference between the two.
7) One may be eligible for more than one Veterans Administration loan at the same time. There is no limit to the number of VA loans that can be had at one time, as long as there is a remaining VA right to use. For loans over $ 144,000, the amount of the entitlement is generally 25% of the VA financing limit for the county where the property in question is located.
8) There is no prepayment penalty on Veterans Administration loans. Any VA loan can be paid off in full at any time, which is a huge advantage as it can help save huge amounts of money on interest.
9) The maturity period for bankruptcies, foreclosures or short sales is shorter for Veterans Administration loans compared to other types of loans such as conventional or FHA. In most cases, one can qualify for a VA loan after 2 years of filing for bankruptcy or foreclosing on their home as opposed to 4 years for bankruptcy and 7 years for foreclosure of a loan. conventional type.
10) Can only be used to purchase a primary residence. VA benefits cannot be used to buy a second home or investment property; however, it can be used to refinance a VA loan that was previously occupied as a primary residence to reduce interest rate (VA IRRL).