Your ability to buy the best house for your money can be a matter of choosing the right lender for your home mortgage loan. Before you begin house hunting, it's a good idea to meet with several lenders to discuss your financial situation and what types of loans they can offer you. If you are an eligible veteran or active duty service member, be sure to make an appointment with a VA lender to find out what the VA Home Loan Program can do for you.
Veterans Affairs home loan basics
VA lenders are private banks, credit unions, savings & loans and mortgage companies that participate in the VA Home Loan Program. Veterans Affairs guaranteed loans are made to eligible members and veterans for the purchase of a home for their own occupancy. The VA's guaranty protects the lender against loss if you fail to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment, allowing you to obtain favorable financing terms. It's possible to qualify for a VA loan even if you haven't been able to qualify for other loans.
The VA Loan Guaranty Service has helped thousands of active duty service members and veterans become homeowners and keep their homes. The VA Home Loan Program is a substantial benefit that you have earned with your military service. For detailed information and to find out if you are eligible, call the VA Regional Loan Center for your area. You can find contact information for all VA Regional Loan Centers on the VA website.
Features of Veterans Affairs home loans
Each loan is unique, but most VA home loans offer the following:
- No down payment. Down payments usually aren't required. However, there are some exceptions - for example, if the purchase price is more than the amount the VA allows for your area or if the loan is made with graduated payment features.
- Thirty-year loans with a choice of repayment methods. You and your lender can work out traditional, fixed or adjustable rates; growing equity; and assumable or graduated payment methods. A 30-year loan means a lower monthly mortgage payment than a 15-year loan (but a slightly higher interest rate).
- Negotiable interest rates. Interest rates are negotiated with your lender based on the prevailing rates in the mortgage market. Once a loan is made, the interest rate for a fixed-rate loan will stay the same for the life of the loan.
- No mortgage insurance premium. In most cases, lenders don't require mortgage insurance with a VA-guaranteed loan. However, veterans are required to pay a VA funding fee.
- Right to prepay your loan without penalty. You can pay more than required each month to pay off the loan early and reduce the amount of interest you will be required to pay.
- Ability to finance the VA funding fee plus reduced funding fees with a down payment of at least five percent and exemption for veterans receiving VA compensation.
- Closing costs that are comparable to other financing types.
- An assumable mortgage. When you sell the property, you may choose to let a VA-eligible buyer assume your mortgage. If you do, the qualifications of the assumer must be reviewed and approved by the lender or the VA.
- A warranty from the builder and assistance from the VA to obtain the cooperation of the builder for homes inspected by the VA during construction.
- Leniency extended to worthy VA homeowners experiencing temporary financial difficulty.
Once you've selected a home and discussed the purchase with the seller or seller's agent, you'll sign a purchase contract conditioned on approval of your VA home loan. Your lender will ask you to fill out a loan application, and you'll be required to present a Certificate of Eligibility along with the completed loan application.
In many cases, lenders can use the VA's online application, webLGY, to obtain a COE. Often the lender can obtain the COE in a matter of seconds. If not, the webLGY application allows them to submit an electronic application. Another alternative is to apply for a COE directly through the Veterans Registration Portal.
Refinancing your loan with the Department of Veterans Affairs
You can also refinance your VA loan with an Interest Rate Reduction Refinancing Loan. These loans are sometimes called "streamline" or "VA to VA" loans. When you refinance, you obtain a new mortgage at a lower interest rate using the money borrowed in the new loan to pay off the outstanding balance on the old loan. The new mortgage may be from the same mortgage lender or from a different lender. As with any mortgage loan, it's wise to contact several lenders before choosing one.
Remember, just because the interest rate might be lower doesn't mean it's always wise to refinance. You need to balance the cost of refinancing against the interest savings of the new loan.
Here are some things to know about refinancing with an IRRRL:
- An IRRRL can only be done if you have already used your eligibility for a VA loan on the property you intend to refinance. It must be a VA to VA refinance and reuse the entitlement you originally used.
- You must still own the property, but there is no requirement that you currently occupy the home. You are required to certify that you have previously occupied the home.
- An IRRRL is only for the purpose of lowering interest, not for receiving cash or other purposes.
- The new mortgage must result in a lower interest rate, unless you are refinancing an existing VA-guaranteed adjustable rate mortgage to a fixed rate.
- Fees and charges may be rolled into the new loan, with little or no out-of-pocket costs to you.
Veterans can also refinance to pay off existing mortgages or other liens of record and take cash out. These loans are generally limited to 90 percent of the appraised value of the property. For more information on this and other aspects of the program, visit the VA website.
Homelessness Prevention Programs
The VA works to keep veterans in their homes through a variety of programs, including emergency foreclosure assistance. The VA can also provide temporary assistance to cover utilities, child care, moving and other expenses to prevent homelessness. If you or a veteran you know are homeless or at risk of becoming homeless, make the call to 877-4AID-VET, or chat online to be connected to the homelessness prevention resources the VA offers. Learn about all the programs that can help you or a veteran you know overcome or prevent homelessness on the VA website.