Are you a veteran or active duty service member looking for a loan to buy a home? If so, you may be eligible for a VA Home Loan.
Loans for Veterans and Active Duty Service Members
Buying a home is a big decision. Maybe it’s your first home, or maybe you’re downsizing. Regardless, the process can be daunting — especially if you’re a veteran or active duty member of the military. As thanks for your service, the government has a number of programs in place to help make homeownership more accessible and affordable for those who have served. One such program is the VA Home Loan.
What is a VA Home Loan?
A VA home loan is a mortgage loan that’s backed by the Department of Veterans Affairs (VA) for those who have served or are presently serving in the U.S. military. The VA backs these loans, which are made by private lenders (banks, savings and loans, or mortgage companies) to veterans, active military personnel, and military spouses who qualify.
The United States government created the VA Loan in 1944 to help returning service members purchase homes without needing a down payment or excellent credit. This historic loan program has helped more than 23 million veterans, active duty military members, and their families purchase or refinance a home.
VA Home Loan Types
There are a number of different types of VA home loans (a VA direct loan and 3 VA-backed loans) available to eligible borrowers:
Native American Direct Loan (NADL) Program
First, let’s look at the NADL program. NADL loans are available to eligible Native American veterans who hope to purchase, construct, or improve a home on Federal Trust land. These loans are provided through the VA, but they’re originated, processed, and closed by private lenders.
VA-Backed Purchase Loan
A VA-backed purchase loan is a loan offered by a financial institution or mortgage company. With your Certificate of Eligibility or COE, in hand, along with your approved credit and income, the lender verifies your eligibility for the VA mortgage.
There is no down payment required for a VA-backed purchase loan. Additionally, the closing costs are generally lower and there are generally better terms and interest rates than those of a conventional loan. Those who are on a VA-backed purchase loan do not need to pay monthly private mortgage insurance (PMI) premiums, as is the case with a conventional loan when the borrower puts down less than 20%.
Cash-Out Refinance Loan
A cash-out refinance loan allows qualified borrowers to take advantage of lower interest rates, and also receive cash for equity in their home. Borrowers can use the cash to make home improvements, pay for college tuition, consolidate debt, or for any other purpose. You can apply through a VA-approved lender to see if you meet the requirements for a cash-out refinance loan.
A Cash-Out Refinance Loan can be compared to a Home Equity Line of Credit (HELOC), as they both allow you to use the equity in your home for a variety of purposes. The main difference is that with a HELOC, if you have an existing mortgage, a home equity loan will be an additional payment that you will have to make, while a Cash-Out Refinance Loan will replace your existing mortgage. With a cash-out refinance loan, you receive a lump sum of cash from the equity in your home, which you can use all at once, and you have to pay back the loan over time.
The Interest Rate Reduction Refinance Loan (IRRRL)
The Interest Rate Reduction Refinance Loan (IRRRL) allows qualified applicants to refinance their existing mortgage into a new VA loan with a lower interest rate. One of the biggest advantages of an IRRRL is that an applicant does not need to have their home appraised to qualify, and there is no income or employment verification required. To be eligible for an IRRRL, you must currently have a VA loan that has been open for at least 210 days, and you must also be current on your mortgage payments.
For homeowners whose first mortgage had a variable interest rate, an IRRRL may be able to provide better stability by locking in a lower, fixed interest rate. An IRRRL has specific requirements, such as never having been delinquent (30 days past due) on your mortgage on any payment in the last 12 months. This loan is specifically for veterans and their families who want to refinance their homes to take advantage of a lower interest rate.
The Potential Advantages of Obtaining a VA Home Loan
There are many potential advantages to obtaining a VA home loan, including the following:
- No down payment required
- No private mortgage insurance (PMI) required
- Competitive interest rates
- Ability to finance up to 100% of the purchase price
- Closing costs can be included in the loan
- There is no prepayment penalty
- You can use your VA eligibility to purchase a multi-unit property
VA Home Loan Eligibility Requirements
To be eligible for a VA loan, you must meet the following criteria:
- Serve or have served in the U.S. Armed Forces, including the National Guard and Reserves
- Obtain a Certificate of Eligibility (COE) from the VA
- Meet the service requirements outlined by the VA (Served 90 consecutive days of active service during wartime, 181 days during peacetime, or 6 years in the National Guard or Reserves)
- Be an unmarried surviving spouse of a veteran who died in service or as a result of a service-connected disability
Are You Eligible for a VA Home Loan?
Now that you know about VA Home Loans, it may be a great time to take action and find out if you are eligible. The first step is to obtain a Certificate of Eligibility (COE) from the VA. Once you have obtained aCOE, you can then begin the process of applying for a VA home loan. To be approved for a VA loan to purchase a home, you will not only need to make sure you have your Certificate of Eligibility but also the following:
- Employment history from the past 2 years
- Individual income tax returns from the past 2 years
- Banking accounts
- Credit history
VA home loans are a great way for veterans and their families to finance the purchase of a new home. With no down payment required and competitive interest rates, VA home loans are an attractive option for those who are eligible. If you think you might be eligible for a VA home loan, reach out to us today.
When you work with us, you will get a partner that is committed to helping you find the right home loan for your unique situation. We have a team of experienced mortgage loan officers who can answer any questions you may have about VA home loans and help you through the application process.