VA Loans

What are VA Loans?

A VA Loan, popularly known as Veterans Affairs (VA) Loan, is a type of mortgage loan that is made available via a program set up by the U.S. Department of Veterans Affairs. The loan was created to assist veterans, service members, or their qualified surviving spouses to become homeowners. The Dept. of Veterans Affairs decide the standards that qualify for the loan; state the terms and conditions of the mortgage loans offered and guarantee a portion of the loan. Veteran loans are offered by private lenders like mortgage firms and banks.

VA Loans provide a home loan guaranty benefit and other home-related programs to assist eligible veterans or their qualified spouse to adapt, retain, repair, build, or buy a home for personal occupancy. VA loans provide up to 100 percent of a mortgage loan based upon the value of the home. Recipients of VA loans do not necessarily have to be first-time home-buyers. Additionally, recipients have the opportunity to reuse the loan benefits or assign the mortgage loan to another eligible person.

In order to be qualified for the Veterans Loan, the VA loan borrower needs to present a certificate of eligibility, that proves their record of military service, to the lender.

Benefits of VA Loans

A VA Loan has a number of benefits which include:

  • Veterans Affairs offers assistance to help borrowers avoid default.
  • Closing costs are limited and may be paid by the seller.
  • Many states offer extra benefits to eligible VA loan borrowers such as property tax reductions.
  • To borrow via a VA loan, a down payment is not necessary unless the lender requires it, or if the purchase price exceeds the property’s value.
  • Lenders of Veterans loans may not charge a prepayment penalty.
  • No private mortgage insurance premium is required.

Types of VA Loans

VA loans have securitization via the Government National Mortgage Association (GNMA). This means that VA loans have a guarantee against default backed by the U.S. government. Veterans Affairs offer different types of loans to assist veterans and their eligible spouse such as:

  • Adapted Housing Grants: this type of VA loan helps veterans with a total and permanent in-service disability to build or purchase a home that is adapted to their respective disability or to modify an existing home to suit their disability.
  • Cash Out Refinance Loans: this loan enables VA loan borrowers to borrow against their home’s equity. Home equity can be used to either make home improvements, fund a child’s educational expenses or to pay off debt. Refinancing loans offer a new loan for a larger amount than the existing note and transform the home’s equity into cash.
  • Interest Rate Reduction Refinance Loan (IRRRL): this type of loan is known as the Streamline Refinance Loan. This loan helps borrowers to obtain a lesser interest rate by refinancing an existing VA loan. This is more like a VA loan-to-VA loan process, enabling borrowers to refinance an existing mortgage with a lower fixed interest rate. It also enables the conversion of a mortgage with an adjustable-rate into a mortgage with a fixed-rate.
  • The Native American Direct Loan Program: this loan is exclusive to eligible Native American veterans and it helps them finance the improvement, construction, or purchase of homes on federal trust land. Sometimes, a reduction in interest rates come with this type of loan.
  • Veterans Affairs Home Purchase Loans: this loan helps veterans or eligible spouses to purchase a home at an affordable interest rate. Most times, home purchase loans do not require private mortgage insurance or a down payment.

Conclusively, VA loans are less costly and more flexible. Since 2007, VA loan volume has soared about 372 percent. Moreover, VA loans have more debt-to-income requirements and forgiving credit when compared to other mortgage programs.