What's in this article?
If you’re a veteran, active duty service member, or surviving spouse, you have specific mortgage loan options available to you.
VA loans are offered through the U.S. Department of Veterans Affairs.
They can be used to build or purchase a home, refinance a mortgage, or make repairs. And they offer numerous benefits to borrowers.
Learn more about the VA loan types available to you, the benefits, and how to qualify.
What is a VA Loan?
The U.S. Department of Veterans Affairs sets the terms and standards for VA loans, but they are not issued through this department. Instead, you will go to a bank or other mortgage provider, such as Homefinity, to acquire a VA loan.
Since VA loan types are backed by the government, they are less of a risk to lenders and can provide more benefits to borrowers.
VA loan benefits include:
- No down payment required*
- No private mortgage insurance (PMI)
- Flexible credit score requirement
- Limited closing costs
- No prepayment penalty
- Support from the VA
While there’s no PMI required, there is a VA funding fee.
Depending on the amount of down payment you provide, you may be required to pay a flat fee that is usually 1.4% to 3.6% of the loan amount. This is either paid up front or rolled into your loan amount.
How to Qualify for a VA Loan
To qualify for a VA loan, you must meet certain requirements and receive a certificate of eligibility (COE) from the VA.
Required documentation to prove your service includes:
- DD Form 214 if you are retired, discharged, or separated from the armed forces
- Statement of service letter if you are still on active duty
- NGB 22 form if you are a National Guard veteran or retired military reservist
- Proof of service-related disability, if applicable
This information you provide will be used to issue a COE(Certificate of Eligibility). Your COE will detail how much your home loan benefit is, and if you are eligible for a funding fee waiver.
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What are the Types of VA Loans?
Depending on your unique needs, each VA loan offers its own pros and cons.
Working closely with a mortgage loan officer who has experience with the various VA loan types, you can weigh your options and determine which loan fits your needs best.
VA Purchase Loan
A standard VA-backed purchase loan will help you buy, build, or improve a home. Interest rates and terms vary by lender, but will be better than the terms offered for other types of loans.
No down payment is required, as long as the sales price isn’t higher than the home’s appraised value.
VA Cash-Out Refinance
As with any refinance loan, a VA-backed cash-out refinance allows you to replace your current loan with a new one that has better rates and terms. You also can cash out your equity, or switch from a non-VA loan to a VA-backed loan.
Cashing out can provide funds to make home improvements, pay off debt, or pay for other large expenses such as school. Closing costs depend on the lender, so be sure to take these costs into account when refinancing.
VA Interest Rate Reduction Refinance Loan (IRRRL)
If you currently have a VA-backed loan and want to refinance, you can switch to a VA Interest Rate Reduction Refinance Loan (IRRRL). This type of loan allows you to reduce your monthly mortgage payments or make them more stable by switching from an adjustable rate to a fixed rate.
The difference between a VA cash-out refinance and an IRRRL is that you must already have a VA-backed loan to be eligible for an IRRRL, and you can only change your terms.
An IRRRL is known as a streamline refinance loan because it is focused on rates and terms only. The eligibility requirements and options are more limited, so the process is “streamlined.”
Native American Direct Loan (NADL) Program
If you are a veteran and either you or your spouse is Native American, you may be eligible for the Native American Direct Loan (NADL) program. This type of loan allows you to build, buy, or improve a home that’s on federal trust land.
To qualify for this type of loan, there are additional requirements. Your tribal government must have a Memorandum of Understanding (MOU) with the VA that details how the program will work on its trust lands.
An NADL has similar benefits to a VA purchase loan, including no down payment, no PMI, limited closing costs, and low interest rates. You also can get more than one NADL for another residence in the future.
How to Get Started with VA-Backed Loans
If you’re eligible for the numerous benefits associated with VA-backed loans, the first step is to acquire a Certificate of Eligibility. If you don’t have one or need help getting one, your trusted mortgage loan officer can help.
Finding a lender that not only offers VA loans and the best rates, but also has the right experience working with these types of loans, is essential to success. You need to be able to trust that your lender understands what you need, and can offer the best recommendations.
The home.com by Homefinity team has the right experience, mixed with an honest and respectful approach. We are here for you to provide the level of support you desire.
Reach out to our team today to start the process.
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