Buying a home is one of the biggest financial decisions anyone can make. And if a home buyer isn't paying cash, then they will usually obtain a mortgage to pay for the home. One popular mortgage for those who can obtain it is the VA loan. The VA loan is one of the benefits provided for veterans and active duty military personnel. This type of loan makes home buying easier for many service men and women who would like to see their dream of owning a home realized. Understanding the VA loan, the way it works and how it compares to other loans can help home buyers decide if the VA loan is the right loan for them.
What is a VA Loan?
The VA loan is a loan that has been backed by the U.S. Department of Veterans Affairs. The VA does not issue the loans directly, but provides a guarantee to approved mortgage lenders. Service people who want to get a VA loan can do so by contacting a qualified lender, and not by contacting the VA itself.
What Are the Benefits of VA Loans?
There are many benefits of VA loans. These benefits make home buying easier for service men and women. One of the most attractive benefits of VA loans is that they require no money down to buy a home. In addition, VA loans have no mortgage insurance requirements. This can save qualifying active military and veterans a lot of money when the time comes to buy a home.
How Does the VA Loan Work?
To qualify for a VA loan, the home buyer begins by getting pre-qualified. This is a quick process that involves answering just a few questions about credit history, salary, assets and other financial information. At the end of the pre-qualification process, the potential home buyer is told how much money they are approved to borrow.
Once the home buyer is pre-qualified, he or she must get pre-approved. Pre-approval is a much more involved process than pre-qualification. To be pre-approved, the home buyer must turn in financial documents that support the information provided when the buyer got pre-qualified. Pre-approval is a long and involved process, but when the pre-approval is finished, the buyer can make competitive offers on homes with confidence that their loan will be approved at the close of escrow.
Once the loan funds, the home buyer must pay a fee to the VA to fund the program and keep the loans going. This fee can be rolled up into the loan, to lessen the burden on the home buyer.
How Do VA Loans Compare to Other Loans?
Nearly all other types of loans require the home buyer to make a down payment. Some loans (like FHA loans) require low down payments around 3.5 percent. Conventional loans may require the home buyer to make a down payment of 20 percent or more. For home buyers on a budget, the down payment is a major hurdle that can prevent some people from buying a home. Therefore, the VA loan's requirement of no down payment is an very appreciated bonus.
Many loans that require a low down payment (like the FHA loan) also require the home buyer to pay for mortgage insurance. The VA loan is different because it does not have this requirement. This can save home buyers thousands of dollars over the life of the loan.
A VA loan does not impose a maximum amount that an eligible veteran may borrow to buy a home using a VA loan. However, the VA loan program does limit the VA's liability by capping the guaranty amount to $453,100 in 2018 for most loans. This maximum limit effectively limits what most banks or lenders are willing to lend to lend without requiring a down payment.
Who is Eligible for a VA Loan?
The VA home loan is for active military, surviving military spouses and veterans. In most cases, to be eligible, the home buyer must serve 181 days on active duty during a time of peace, or must serve 90 days active duty during a time of war. Home buyers who have served six years in the National Guard or Reserves are also eligible. Veterans, active military and surviving military spouses who want to know whether or not they are eligible for a VA loan can find out by contacting their VA office.
Even borrowers who have a history of foreclosure or bankruptcy are still eligible for a VA loan. However, the VA loan is not provided to buyers who are trying to purchase a second property. The VA loan is only given to people who want to purchase a primary residence.
How Can You Get Started?
Home buyers who would like to get started with a VA loan should first contact a qualified lender to find out what kind of paperwork they'll need to provide in order to be pre-approved. It also helps to look at homes in the area where the home will be purchased. This can help home buyers find out where they want to buy and what their budget will be. Finally, home buyers who would like to get started with a VA loan can work with a qualified real estate professional. Working with a good real estate professional can help you get the home you want at a price you can afford.