What are VA Loans and how do they work?
VA loans are guaranteed by the Dept of Veterans Affairs. The VA stands for Veterans Administration and as the name implies this is a benefit that is offered to Veterans, their spouses, and unremarried widows/widowers of veterans who died of service connected disabilities. No down payment is required. No PMI is required, although a guaranty fee is due to VA on most loans. Receipt of service connected disability payments usually provides an exemption. Unmarried partners may NOT receive this benefit unless that person is also a veteran.
A certificate of eligibility is needed and the basic entitlement of $36,000 is the same for all--from buck private to 5 star general, from seaman to full admiral. A supplemental entitlement for the basic prgram will cover loans up to $417,000. Loans exceeding that amount are treated separately and have special guidelines. Eligibility does not mean approval. The veteran must still qualify with income and credit analysis. VA loans are assumable, too, which means a future buyer can take over the payments on the loan if meeting qualifications.
The VA benefit can be used more than once. There is also a streamline refinance provision called the Interest Rate Reduction Refinancing Loan [IRRRL] which allows veterans to save money without needing to go through the entire approval process again. The sellers can pay closing costs for the veterans and there are no required seller paid points any longer. The process takes no longer than for any other type of loan IF you use a Realtor familiar with the program AND a Loan Officer who is well versed in the VA program.
A VA loan, is a loan that is offered to active and in-active military personnel. This loan is one of the only loans left in the lending world that requires NO money down and NO monthly mortgage insurance. This loan is designed to assist military personnel the means to affordably get them and their families in to a home of their own.
Again, NO down payment required. On most loans you have to pay mortgage insurance if you have less than 20% down. The VA loan also offers NO mortgage insurance as well. The Veteran simply pays (or finances in to the loan) for what is called an UP Front VA Funding fee. The first time the vet uses what is called a VA Certificate of Eligibility, the up front VA funding Fee is 2.15% of the loan. Simply put, if the home purchase was for $100,000, the loan amount would now be $102,150. This is a very small price to pay instead of having to pay a monthly mortgage insurance payment. If the veteran was to use the VA Certificate of Eligibility ****again (after the first loan is satisfied) the up front VA Funding Fee would be 3.3% of the loan.
These loans are also called a **VA Guaranteed Loan. **This does not mean that any Vet with a VA Certificate of Eligibility ****is going to be able to get a loan no matter what, they still have to meet lender guidelines for loan approval. The VA Guaranteed Loan ****refers to when a lender does a loan for the Vet, the VA is basically the Mortgage Insurance, as they will pay the lender up to 25% of the loan balance to the lender if the Vet defaults on the loan.
An incredible feature of VA loans is the ability to do an IRRRL streamline refinance. Borrowers with good payment histories can reduce their rate with no income documentation, and often no appraisal if the loan servicer doesn't change. Since VA loans are guaranteed directly by the federal government, their rates are better than conforming (Fannie or Freddie Mac loans). As of 11/5, I'm writing these loans at 3.25% with lender paid closing costs in most cases!