VA Home Loans – How They Work and Who Can Use Them
The VA home loan program is designed to assist qualified active duty and retired military, national guard, reserves, veterans, and surviving spouses in purchasing or constructing a home with little or no down payment. These loans are guaranteed by the US Department of Veterans Affairs and offered to borrowers by credit unions and other private institutions. Below is a brief description of how VA loans work as well as the eligibility requirements for taking up the loans.
VA Loan Eligibility There are two essential conditions that are referred to as the occupancy and military service requirements to qualify for a VA home loan.
Occupancy Requirements The occupancy requirement pertains to the use of the home as a primary residence or not. When applying for a VA loan, one must show that they will occupy the home being purchased.
Military Service Requirements The military service requirements refer to having served on active duty in the US military for a minimum period of time, or being an eligible surviving spouse:The military service requirements refer to having served on active duty in the US military for a minimum period of time, or being an eligible surviving spouse:
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Active duty service members: They must have been enlisted for not less than 90 days during a war or 181 days in a period of peace.
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Veterans: Must have served at least 90 consecutive days of active duty with one day served during a war.
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Selected reservists: This candidate must have served for at least six years in the Selected Reserves or the National Guard.
- Surviving spouses: Conditional only if the deceased veteran fulfilled the military service necessity
How VA Loans Work
VA loans enable eligible individuals to acquire or renovate a home without any down payment. Here are some key features of how VA loans work:Here are some key features of how VA loans work:
No Down Payment Required Contrary to other conventional loans where one is expected to pay between 5% to 20% down payment, the VA loans do not require any down payment. This makes home buying more affordable to the veterans and the service members.
No Mortgage Insurance Required FHA Loans which require less than 20% down payment require private mortgage insurance (PMI). However, VA loans do not come with a requirement for having PMI regardless of the loan to value ratio. This saves borrowers thousands of dollars throughout the course of the loan.
Capitalization Fee Added to the Principal Sum However, there are no monthly payments on VA loans themselves, but the funding fee is rolled into the loan. The funding fee for the first time is 2. 3 percent of the amount of the loan. For subsequent use, the fee is 3. 6%. The following charges apply for loans above $144000:
History of Lowered Credit Score/Debt Requirements Credit score requirements and debt-to-income ratios are much more lenient in the VA loan system compared to conventional loans. Credit scores can be as low as 580-620. And debt ratios can be as high as 41% – 50% in some cases. This means more borrowers qualify for it.
No Prepayment Penalties It is important to note that VA loans do not allow prepayment penalties to be charged by the lenders. This afford the ability to refinance or sell without incurring penalty fees.
This is followed by the guide on how to apply for a VA home loan
If you meet the eligibility criteria for a VA home loan, follow these steps to move forward with preapproval and applying:If you meet the eligibility criteria for a VA home loan, follow these steps to move forward with preapproval and applying:
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Be pre-approved - Meet with a lender to find out how much money you are eligible to borrow based on your credit profile. This makes it easier when house shopping as it defines what is expected from a particular house.
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Make an offer – The next step is to make an offer for a house once you’ve located one that suits your needs after getting pre-approved for a mortgage.
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Formally apply for your VA loan – After an offer is accepted, formally apply for financing. You will be informed on the documents necessary by your lender.
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Home appraisal – You will find an appraiser who will determine that the home is worth the amount you paid and is in compliance with VA Minimum Property Requirements.
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Obtain loan estimate – The lender will provide the borrower with the loan estimate and the complete details of the closing costs.
- Closing – The final steps of the legal transfer of home ownership occur at the closing where papers are signed and payment made.
Once you are done with the closing process, you can start occupying the new home of your dream which you have secured through VA loan.
Benefits of VA Loans
The fact is that obtaining a VA backed loan for your home has many benefits to it. Benefits include:
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Entails no down payment or PMI payments that are usually paid every month.
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Interest rates lower than market average and relaxed approval conditions
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Permits gifts from relatives for down payments
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There is no requirement for personal mortgage insurance.
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No prepayment penalties
- May be assumed by qualified buyers in the event of sale
VA loans offer a lot of benefits to the qualified military personnel and veterans in terms of savings and loan provisions. Your earned benefits can also enable you to easily and cheaply acquire your home since you will not need to spend your own money.
