3 VA Loans and 12 Ways to Use Them
VA loans are well-known for their zero-down-payment capabilities, which have helped many servicemembers buy homes. But VA loans can do so much more. Home loan benefits earned in the military can help pay off debts, get you much-needed cash for home improvements, reduce interest rates and payments, and even assume another mortgage.
In all, there are three different kinds of VA loans to choose from, and so many more ways to use them. You probably know that, in general, a VA-guaranteed loan can be used to do two things:
- Buy a home
- Refinance a home
By reading on, you’ll discover three types of VA loans and 12 ways to use them. More importantly, you’ll see that one or more might apply to your specific home financing need.
1. VA Purchase Loan
If you’re looking to buy a home, a VA purchase loan could be for you. The following list shows all of the ways you could use a VA purchase loan:
- No down payment with ample entitlement
- No PMI (private mortgage insurance)
- VA appraisal (safe, sound, and sanitary)
- Homeownership retention (VA offers tools to help Veterans keep their homes)
It’s important to note that while this is a comprehensive list of the VA’s acceptable uses for VA purchase loans, not all VA-approved lenders offer VA loans for every purpose.
2. VA Cash-Out Refinance Loan
A VA cash-out refinance has a name that may be misleading. It doesn’t always result in cash out. Yes, many homeowners have used this loan program to cash out equity in their homes. But, some other common reasons to obtain cash from this type of loan are to:
- Pay off high interest credit cards or loans
- Make home improvements
- Fund a child’s education
But, as we mentioned earlier, a cash-out loan doesn’t always yield cash. Borrowers have also used this type of loan to:
- Eliminate private mortgage insurance (PMI) on non-VA loans
- Switch from an adjustable-rate mortgage (ARM) to a fixed-rate loan
A VA cash-out loan is an option for a regular refinance loan if you don’t already have a VA loan. If you currently have a conventional loan, you’re possibly paying monthly mortgage insurance on top of your principal and interest payment. Because the VA backs enough of the loan to secure it for the lender, no additional monthly mortgage insurance premium is needed.
Another major difference between the VA cash-out loan versus other cash-out programs is that the VA allows up to 100% financing. So, a VA cash-out loan may be a great option if you’re needing to use all of your home’s equity.
3. VA Interest Rate Reduction Refinance Loan (IRRRL)
A VA Interest Rate Reduction Refinance Loan (IRRRL) is for current VA borrowers because it can only be used to refinance an existing VA loan. Nicknamed a VA streamline refinance, this type of refinance loan uses the entitlement you already have with your existing VA loan so you don’t need to apply for a new Certificate of Eligibility (COE). In some cases, an appraisal is not necessary. An IRRRL can be used to accomplish these financial goals:
- Get a lower interest rate
- Get a lower monthly payment
- Switch from an ARM to a fixed-rate mortgage
If you want a VA IRRRL, you’ll need to be aware that if you’re refinancing a VA loan that is 30 days or more past due, you will need prior VA approval, and any balances on the existing loan, including reasonable legal costs to terminate the loan, are rolled in.
Advantages of a VA Loan
Regardless of which type of VA loan you use, the VA has many advantages. For approved lenders, the VA guarantees a portion of each VA loan, so you can enjoy favorable terms on your VA loan, such as:
- No down payment potential
- Better loan terms and competitive interest rates
- No PMI
- Fewer closing costs, which may be paid by the seller
- No penalty for paying extra towards principal or early payoff
When you know the three kinds of VA loans and the many ways to use them, you can get the most out of your VA home loan benefit.
