The U.S. Department of Veterans Affairs assists veterans, service members and their eligible surviving spouses with home-ownership.
It’s important to note; Veterans have many options when it comes to choosing a Veterans Affairs loan, or simply a VA loan. In fact, a VA loan offers a variety of different home loan programs based on your needs.
The VA doesn’t directly handle the VA loan process. The VA loan process is handled by private lenders. However, the VA does stand behind the loan because it guarantees a portion of the loan. For example, if something goes wrong and you can no longer make the payments, your lender can contact the VA. It will cover any losses that may incur with you no longer making payments. Thus, a VA loan is an important option because the lender has more protection than it would with a traditional loan.
With a VA loan, you can build a home, purchase and improve a home, buy a condominium unit, a home, manufactured house or install energy-related improvements.
VA Loan Options:
Purchase and Cash-Out Refinancing loans are two separate loans. The Purchase VA Loan help you buy property at a competitive interest rate. It also is a great option if you are having difficulty finding other home financing. The purchase VA loan generally doesn’t require a down payment. The only time you’re required to pay a down payment is if the sales price doesn’t exceed your home’s appraised value.
Other advantages include:
• No down payment (unless the property exceeds the appraised value)
• No private mortgage insurance premium
• No penalty fee if you pay the VA loan off early
• No first-time home-buyer requirement
• Limited closing costs
• VA can provide assistance
• Reuse the VA loan, if you need it
The Cash-Out Refinance Loan is an option if you want to use the equity in your home to make home improvements, pay off bills or go to school.
Eligibility Requirements for the Purchase and Cash-Out Refinance VA Loan:
To qualify for the loan, you have to have three things:
1. Sufficient income
2. Suitable credit
3. Valid Certificate of Eligibility (COE)
To qualify, you must meet the COE requirements such as not being dishonorable discharged and minimum active duty service requirement. Make sure you look into any other requirements COE requires to make sure you qualify.
Interest Rate Reduction Refinance VA Loan
This VA loan is different than the cash-out refinance loan. You can use the IRRRL to lower the interest rate by refinancing your existing VA loan. By lowering your interest rate, you can decrease your monthly mortgage payments. You can also move from an adjustable rate mortgage (ARM) to a fixed rate mortgage.
The Advantages of the IRRRL includes:
• No money out of pocket which includes the new loan’s cost
• No credit underwriting package
• No appraisal
• No COE
Some disadvantages of the IRRRL consist of:
• No lender is require to give you the IRRRL
• You may not get any cash back from the VA loan
• When transforming your ARM loan to a fixed loan, the interest rate may escalation
• There are loan limits
• The VA funding fee must be paid at closing
Native American Direct VA Loan
The NADL program assists Native American veterans construct, purchase or improve the property on Federal Trust Land. For instance, you could use the NADL to buy and improve the home. It also helps reduce the interest rate on the VA loan.
You may still be eligible for the loan if you aren’t Native American, but your spouse is. However, you must purchase and reside on Federal Trust Land to meet the qualification.
Besides being Native American, living on Federal Trust Land and having a COE, you must meet other eligibility requirements. For instance, you and your spouse must have satisfactory credit, a tribal organization or other Native American group must sign a Memorandum of Understanding. This understanding outlines how the program operates on the trusted land.
You may have to pay loan fee, also called a funding fee, which is a percentage of your VA loan amount. If you receive VA compensation because of a service related disability, are entitled to receive the compensation or a surviving spouse of a veteran who died while in service, you don’t have to pay the fee.
VA Loan Application Process
The steps in the VA loan application process depend on which loan you’re trying to acquire. For instance, the Cash-out Refinance or Purchase VA loan are obtained via a lender of your choice after you get a COE. You can obtain a CEO by mail, your lender or eBenefits. However, if you want the NADL VA loan, then you must have a Memorandum of Understanding, your COE and select your property on Federal Trusted Land. You then have to apply for your VA loan and close on the loan.
Whether you’re thinking about buying your first or second home, home-ownership is a big step. However, the VA tries to support you live the American Dream of home-ownership by offering you a VA loan that fits your needs such as the Purchase, Cash-Out Refinance and the Interest Rate Reduction Refinance VA loan. Each VA loan offers unique advantages such as lower interest rate, easy financing terms and improving your house.
The process of obtaining a VA loan typically takes longer than with a conventional loan. However, the benefits are worth the wait. Besides, there are ways to speed the process along like getting your COE before you start looking for a house or sign the purchase agreement. Also, when looking for your new home, make sure that your purchase price is comparable to other property in the same neighborhood. Remember, even though you’re using a VA loan, you need to your financial house in order. You also need to figure out which VA loan is best for you.