A VA mortgage is one of the most potent tools to buy a home for military veterans. But understanding how these mortgages work and what makes them so unique can be difficult for some.
In this article, you'll learn about the key features of VA mortgage plans, including eligibility requirements and documentation requirements. Also, remember that qualified lenders manage VA homeloans, the VA only guarantees them.
No Down Payment Requirement
VA mortgages don't require a down payment. The buyer, or veteran, only needs to pay an appraisal fee, application fee, and funding fee.
With many people unable to afford large down payments or have limited funds available for closing costs, VA loans are an attractive option. It is especially true for military members who have had their income significantly impacted by deployment.
Competitive Interest Rates
Interest rates for these loans can range from 1.5% to 4.75%, depending on your credit score and other qualifications. The rate will be locked in for at least six months when you apply for an Advantage or VHDA loan and for as long as 30 years if you choose to repay it with an interest-only mortgage that offers little-to-no principal payments.
No Private Mortgage Insurance
One of the most attractive benefits for Veterans is that they don't have to pay private mortgage insurance with their mortgages. Normally, people without some government backing need to pay PMI with their conventional loans and other loans.
Available For Any Veteran with an Honorable Discharge
Mortgage lenders require documented proof of military service before granting loans. The most common type is an honorable discharge. Military and Veteran Affairs have guidelines about how to determine that status. Even if they don't qualify for VA loans, it doesn't mean they're out of luck; there are many federal loan programs available, too.
VA Guarantees the Lenders
Unlike conventional finance companies, a qualified lender doesn't have to worry about the asset value decreasing and going into negative equity. On top of that, the VA will compensate the lender for additional interest income if the property is sold at a profit within ten years of being taken over by the government.
Qualified lenders can invest more in riskier products as they know they can offset any losses against their potential gains from VA guarantees. In this way, qualified lenders manage VA home loans; the VA only guarantees them.
VA Funding Fee Can Be Paid In Several Ways
VA funding fee can be paid in several ways, depending on the terms of the loan, as:
- An upfront payment when you buy your home
- Monthly payments for as long as you own and occupy your home
- One lump sum before closing; the funding fee is not tax-deductible.
Choosing the right type of VA mortgage plan is very important, and you should understand all your options before applying for anything. The most common type of VA loan is a cash-out refinance loan that allows you to get more money from your home sale than you would from a typical refinance.