What Is a VA Loan?
VA loans were established in 1944 to help service members returning from WWII re-enter civilian life. Today, over 23 million VA loans later, these mortgages enable eligible borrowers to finance up to 100% of their home’s value. VA loans are best known for their zero-down-payment benefit, and have a unique set of advantages.
What Are the Advantages of a VA Loan?
VA loans have a special group of features not all found with other loan programs. Because a portion of each loan is guaranteed by the VA, lenders can offer attractive terms, such as:
- Zero down payment within borrower’s available entitlement
- No monthly private mortgage insurance (PMI). May require VA Funding Fee.
- Competitive interest rates
- Limits on fees and allowable closing costs
- No penalty for early payoff or paying down principal
- Streamlined refinancing
Who’s Eligible for a VA Loan?
If you are a Veteran, active-duty service member, surviving spouse, a reserve or guard member, academy cadet or midshipman, an officer of the National Oceanic and Atmospheric Administration (NOAA) or U.S. Public Health Service (PHS), or if you are a WWII merchant seaman, you may be eligible for VA home loan benefits. We can help you know for sure by assisting with your request for a Certificate of Eligibility.
What’s Needed for VA Loan Approval?
When approving a VA loan, the lender looks at four key areas of your application:
- VA entitlement: Do you have entitlement to back the loan?
- The property: Does it meet the VA’s minimum property requirements (MPRs)?
- Occupancy: Do you intend to live in the home as your primary residence?
- Financials: Do you have qualifying income, credit, and assets to repay the loan?
Can I Use My VA Home Loan Benefit More Than Once?
Yes. Whether you’re buying your first home, upsizing for your growing family, or downsizing to an empty-nester place, the VA home loan benefit can be used again and again. Your entitlement was designed so that it can be restored from prior use. So, you may find that the home loan benefit you earned from service is a benefit for life.
Can I Use a VA Loan to Refinance?
Yes. When choosing a VA refinance loan, it’s helpful to understand your options. Essentially, there are two types of VA refinance loans: the VA streamline refinance loan (IRRRL), and the cash-out loan. A streamline can be used if you already have a VA loan, and you want to reduce your interest rate or monthly payment, or want to switch from an adjustable rate to a fixed rate. A VA cash-out loan can be used refinance from a VA or other type of mortgage, and can provide the opportunity to consolidate debt or to get cash out of your home’s equity to pay for expenses.
How Much Can I Borrow Using a VA Loan?
VA loan limits have traditionally restricted how much you can borrow without making a down payment, but a 2020 law eliminated loan limits for most VA loans. Your maximum VA loan amount is now restricted only by your entitlement and your qualifications. When limits do apply, the limits don’t cap the amount you can borrow, but they do set the maximum portion of the loan you can finance with no money down.
That said, VA loans with no down payment can be offered to qualified borrowers with full and partial entitlement. If some of your entitlement is with a prior VA loan, your maximum amount on a zero-down loan will be limited to four times the amount of available entitlement. A loan for more will require a down payment.
What Types of Home Can I Buy With a VA Loan?
Only certain kinds of homes can be financed with VA loans. But the good news is that the list is long. Single- and multi-family homes, condos, townhomes, new construction, manufactured, and rural/farmhouse are all examples of dwellings that may be financed with a VA-backed loan. Keep in mind, though, that not all lenders offer financing for all of these types of properties.
Additionally, the home you buy must meet VA minimum property requirements (MPRs) for safety, sound structure, and sanitation.
Do VA Loans Carry a Prepayment Penalty?
There is no prepayment penalty on VA loans. As a VA-backed homeowner, you can sell your home or refinance your VA loan at any time without incurring a prepayment penalty or early-exit fee. Furthermore, your existing VA loan can be “assumed” by other VA-eligible homebuyers.
Can I Get a Fixed-Rate VA Loan?
Veterans First offers fixed-rate VA home loans. With a fixed-rate loan at competitively low rates, you won’t have to worry about the unpredictability that comes with adjustable rate mortgages. Your fixed-rate term can range from 15 to 30 years. A shorter term can allow you to save on interest over time. Ask your loan officer to help you understand your options.
What Closing Costs Will I Have to Pay to Get a VA Loan?
You can expect that you may need to pay typical costs associated with most mortgages, including fees for a credit report, appraisal, compliance inspection, loan origination, discount points, assessments and insurance, hazard insurance, flood zone determination, survey fee, title examination and insurance, recording fee, mailing and/or wire fees, Mortgage Electronic Registration System (MERS), and certain other fees allowed by the VA. But the VA does not allow the borrower to be charged for document preparation fees, certain attorney fees, real estate commissions, tax service fees, or loan application and processing fees.
Are There Any Fees Specific to VA Loans?
One fee unique to VA loans is the VA Funding Fee. This fee is charged at closing and can run between .5% and 3.6% of the loan amount. The fee is collected and paid to the VA to help offset costs to administer the Loan Guaranty Program. Some borrowers, like surviving spouses and certain disabled Veterans, are exempt.
Do I Need to Get Prequalified to Use a VA Loan?
Prequalifying is an optional step early in the VA loan process. A “prequal letter” is provided by your lender. It’s not a guaranteed loan offer, but it specifies how much the lender is willing to lend you, up to a certain amount, based on some assumptions. Having an idea of how much you can borrow can save you time while house hunting. Home sellers and their real estate agents typically prefer a prequal letter to accompany serious offers.
