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Our complete guide to the VA loan provides you with the tools necessary to navigate your VA home purchase or refinance and get the most out of your hard-earned benefit.
What is a VA Loan?
A VA loan is a government-backed mortgage option available to Veterans, service members and surviving spouses. VA loans are made by private lenders, like mortgage companies and banks, and not the Department of Veterans Affairs.
VA home loans offer competitive interest rates and terms and can be used to purchase a single-family home, condominium, multi-unit property, manufactured house or new construction.
The Basic Process
A VA mortgage is a specialized home loan product, but the process for buying a home with one is similar to any other mortgage type. You’ll work with a qualified lender to get preapproved, shop for a home, make an offer, go through the underwriting and appraisal process and finally, loan closing.
Beyond the benefits like $0 down payment and no mortgage insurance, the largest difference with VA loans is that the lender will need to verify your eligibility for a VA loan – an item typically done by the lender in-house.
If you’re ready to start your VA loan, check your eligibility or have specific questions on the VA loan, talk with a Hudson United VA Home Loan Program specialist today.
VA Loan vs. Traditional Mortgages
The federal government created the VA home loan program to make homebuying easier for those who serve our country. This benefit program offers arguably the most powerful loan option on the market. Qualified Veterans can purchase with no down payment, no mortgage insurance, flexible credit guidelines and the industry’s lowest average fixed rates.
See how the VA Loan compares to a conventional mortgage:
| VA Loans | Conventional Loans |
|---|---|
| 0% Down (for qualified borrowers)VA loans are among the last 0% down home loans available on the market today. |
Up to 20% DownConventional loans generally require down payments that can reach up to 20% to secure a home loan, pushing them out of reach for many homebuyers. |
| No PMISince VA loans are government backed, banks do not require you to buy Private Mortgage Insurance. | PMI RequiredPrivate Mortgage Insurance is typically required for borrowers who finance more than 80% of their home’s value, tacking on additional monthly expenses. |
| Competitive Interest RatesVA loans have had the lowest average fixed interest rate on the market for more than five years in a row, according to data from Ellie Mae. | Low Rates at a CostBuyers often need top-tier credit scores in order to tap into the best conventional mortgage rates. With VA loans, Veterans have access to low rates without the need for sky-high credit. |
| Easier to QualifyThe VA loan is a hard-earned job benefit created to expand access to homeownership for Veterans and service members. More flexible and forgiving credit underwriting guidelines are a hallmark of the program. | Standard Qualification ProceduresConventional mortgage options often require higher credit scores and down payment requirements than VA loans, along with stricter underwriting guidelines in some cases. |
Types of VA Loans
The VA loan benefit offers qualified Veterans multiple powerful home financing options.
VA Purchase Loan
Veterans and service members can use the VA loan to purchase new or existing homes with $0 down payment. VA purchase loans also allow Veterans to buy single-family homes, condominiums, multi-unit properties (like a duplex or townhome) and even new construction.
Policies and guidelines can vary by lender.
VA IRRRL
The VA Interest Rate Reduction Refinance Loan (IRRRL) is one of the VA loan program’s two refinance options and the one most Veteran homeowners choose.
These are also known as VA Streamlines, and that’s because they’re simple, low-cost refinance loans that in some cases might not require credit underwriting, income verification or an appraisal.
The VA IRRRL is only for Veterans who currently have a VA loan, require that your new rate is lesser than your old rate and have a limit on the time it takes to recoup the costs and fees. All of which help ensure Veterans realize the full financial benefit.
VA Cash-Out Refinance
The VA Cash-Out refinance allows qualified homeowners to refinance their mortgage and take out cash from their home’s equity. These loans are open to Veterans with and without current VA loans. Qualified homeowners can typically refinance up to 90 percent of their home’s value.
Lending guidelines and loan-to-value requirements can vary by lender. Homeowners are not required to take out cash with these loans, which means Veterans with non-VA mortgages can use this option as a basic rate-and-term refinance.
VA Energy Efficient Mortgage
The VA allows Veterans to borrow additional money to pay for energy efficiency improvements to a home, as part of either a home purchase or a refinance.
Veterans can finance up to an extra $6,000 to cover the cost of qualified improvements, like storm or thermal windows, heat pumps and solar heating and cooling systems. Homeowners can’t use this option to purchase appliances, window air conditioning units and other non-permanent additions.
Exploring the VA Loan
The VA loan program has helped generations of Veterans, service members and military families achieve the dream of homeownership. At the heart of this benefit is a promise: Because of their selfless service to our country, Veterans have access to a home loan program with flexible guidelines and significant financial benefits, chiefly the ability to purchase with no down payment.
Let’s take a closer look at how VA loans work and what it takes to start the VA loan process.
Who created the VA Loan program?
The VA home loan was created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit. This historic program has guaranteed more than 25 million VA loans, helping Veterans, active duty military members and their families purchase or refinance a home.
What is the VA guaranty?
Although the VA loan is a federal program, the government generally does not make direct loans to Veterans. Instead, private lenders, including Hudson United Mortgage, finance the loan while the Department of Veterans Affairs offers a guaranty.
This guaranty protects the lender against total loss should the buyer default, which provides an incentive for private lenders to offer the VA loan with better terms than other mortgage options.
What are VA loan limits?
Qualified veterans with their full VA loan entitlement can borrow as much as a lender is willing to extend, all without a down payment. The VA loan limits only come into play for buyers with less than their full entitlement, either because they have one or more active VA loans or because they’ve lost a previous one to foreclosure. To see how the VA loan limits might affect you, give us a call at (845) 584-5259.
What is the VA funding fee?
The VA Funding Fee goes directly to the VA to ensure the program keeps running for future generations of Veteran and military homebuyers by removing any additional burdens off taxpayers and Veterans.
The fee varies depending on the borrower’s circumstances. For example, if this is your first time using the VA home loan program, the funding fee is typically 2.3 percent of the purchase price of the home. For subsequent use of your VA loan benefit, the fee is 3.6 percent. The fee for an Interest Rate Reduction Refinance loan is just 0.5 percent, no matter how many times you’ve used the benefit.
VA borrowers can roll the funding fee into their overall loan amount. The VA also limits closing costs for Veterans and allows sellers to pay most or all of those expenses. Many of our borrowers purchase a home with no money due at closing, but every buyer’s situation is different.
The VA also exempts some Veterans and surviving spouses from the funding fee entirely. The most common exemption is for Veterans receiving compensation for a service-connected disability. Surviving spouses with VA loan eligibility are also exempt. Only the VA can make a determination about funding fee exemptions.
Is the VA loan a good option?
VA loans are arguably the most powerful loan option on the market. They come with a list of big-time benefits, including $0 down payment, no mortgage insurance, flexible and forgiving credit guidelines and the industry’s lowest average fixed interest rates.
Every Veteran buyer’s situation is different, and going over all of your loan options with a home loan specialist can help ensure you make the best financial decision possible.
How do VA loans perform in today’s mortgage and real estate environment?
Today, the VA mortgage is more important than ever. Scores of Veteran and military buyers found it increasingly difficult to get home financing in the wake of the Great Recession. VA loan utilization has soared over the last 15 years. The VA backed a record 1.4 million loans in Fiscal Year 2021.
VA loans help Veterans and service members become homeowners without having to spend years building great credit or saving for a big down payment. They’ve been a lifeline for younger homebuyers in particular. This hard-earned benefit program continues to fulfill its original mission nearly eight decades after its creation.
How do I get a VA loan?
Talk with a trusted lender that knows VA loans and how to get the most from this hard-earned benefit. The process typically starts with getting preapproved, which can often be done in minutes using your phone, laptop or tablet.
Loan preapproval is a key first step before making an offer on your dream home. Having that preapproval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
If I’ve previously used a VA loan, can I use it again?
Yes, this is not a one-time option. Once you earn the VA loan benefit, it’s yours for life. You can reuse the VA loan over and over again, and it’s even possible to have more than one active VA loan at the same time.
Contact me to learn more about the VA Home Loan program and let’s start your search today!
