VA Loan Financing

How

A VA Home Mortgage Loan Works

VA Loan Financing 

A VA loan is the more common term used to define mortgage loans issued to veterans of the US Armed Forces by private lenders. These loans are backed by the US Department of Veterans Affairs and they are eligible to not only veterans themselves, but also to active duty military members and widowed military spouses. These loans provide the funding necessary to buy homes, and as of 2019, roughly 8% of all homes are purchased with VA loans.

VA Loan Financing Options

How a VA Home Loan Works

With a conventional mortgage, lenders agree to provide funding to borrowers based on their credit history, income, collateral, and more. A VA loan is an example of an unconventional mortgage because it is backed by the federal government. If you default on a VA loan, the government will repay all or some of it on your behalf. As a result of this, VA loans are generally easier to obtain than conventional mortgages since the lenders incur much less risk.

VA Loans
Veteran Financing

Do You Qualify for a VA Home Loan?

In order to qualify for a VA home loan, you must be able to meet certain requirements.

  • You must be an active duty military member or an honorably discharged veteran.
  • You must have 90 consecutive days of active service during wartime or 181 days of consecutive peacetime service.
  • If you serve(d) with the National Guard or Selected Reserve, you must have more than six years of service.
  • You may also qualify for a VA loan if you are the husband or wife of a service member who died in the line of duty.

Before applying for a VA mortgage, you will need to obtain a Certificate of Eligibility through the VA. You can get this certificate online, via postal mail, and in many cases, even from your lender.

The Benefits of a VA Home Loan

VA loans can be beneficial in many ways.

  • You don’t need a down payment. In 2018, about half of all the homes bought with VA loans were purchased without a down payment.
  • You can borrow as much as you need, but there is a maximum that the government will secure. In 2019, the federal government will secure 25% of the amount you borrow up to a total of $121,087. The government will not guarantee dollar amounts larger than this.
  • There’s no minimum credit score needed. Though you’ll have more options with a score at or above 620, you may be able to secure a VA loan with a much lower score since these loans are handled through private lenders.
  • Bankruptcy or foreclosure won’t disqualify you. Though they may disqualify you for a conventional mortgage, you can still obtain a VA loan even if you’ve filed for bankruptcy or dealt with foreclosures long as two years have passed.
  • You won’t be penalized for prepayment. If you decide to pay off your home loan early, there is no penalty for doing so.
  • There is no Private Mortgage Insurance requirement. Private Mortgage Insurance, or PMI, is typically required for anyone who buys a home with less than 20% down. For a loan of $200,000, an additional 1% for PMI could add over $150 to your mortgage payment. VA loans have no PMI requirements and can save you a great deal of money.

Interest rates can vary depending on factors like your credit score, and you can only use a VA loan to buy your primary residence or refinance your existing loan – so it can’t be used to buy an investment property or second home. However, for anyone who may be otherwise unable to secure a mortgage through conventional means, VA home loans are excellent options. Contact us today to learn more about how we can help you secure an affordable VA loan to buy the home of your dreams.

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