VA Loans 101
June 5, 2018 | JoAnn Johnson
VA loans are for Veterans, Service Members and select military spouses.  The main advantages are no required down payment, lower credit-score requirements and no mortgage insurance. A VA loan is issued by a private lender and insured by the Department of Veterans Affairs. It’s a valuable benefit offering a mortgage with a lower-than-most interest rate.
Basic VA Service Requirements
·       Served for 90 consecutive days of active service in wartime, OR
·       Served for 181 days of active service during peacetime, OR
·       Has more than 6 years in the Reserves or Nations Guard Active-duty Servicepersons
·       If you are a spouse of someone who meets these conditions, you’ll likely qualify.
·       Servicepersons on active duty who have served for 90 consecutive days of active service are eligible Reservists and Members of the National Guard
 
Benefits of a VA loan versus Traditional Mortgages
·       No down payment
·       No mortgage insurance
·       Low interest rates
·       Higher DTI (debt-to-income) ratios accepted. The DTI is determined by the lender and not the VA and allowable DTI usually doesn’t exceed 41%.
·       Low closing costs
·       Easier to qualify for than traditional loans
 
How do you get started?
 
If you qualify for a VA loan, you’ll receive a document called a VA certificate of eligibility which will prove to lenders that you qualify for a VA loan. However, you don’t need one on hand to start the process. Lenders can get this document from the government on your behalf during pre-approval. Find a lender that specializes in VA loans and let them help you get started.
Get prequalified: Find a VA lender and prequalify to get an estimate of how much house you can afford based on your income, credit, entitlement and other financial factors. Prequalification is a basic first step that paves the way for a much more powerful step – VA loan preapproval.
Get preapproved: Loan preapproval is a major step and puts you in the driver’s seat to spring into action when you find a home you love. Lenders will verify income and financial information to get a clear sense of your purchasing power. The end result is receiving a preapproval letter. These letters show real estate agents and sellers that you’re a strong and serious buyer who has what it takes to get to closing.
13 Things You Need to Know About VA Loans
1. They’re reusable. You can use your full VA entitlement over and over again as long as you pay off the loan each time.
2. They’re only for certain types of homes. If you’re planning to buy a working farm, a downtown restaurant or a fixer-upper, the VA loan may not be for you. It’s mainly designed for properties in “move-in ready” condition, including single-family homes, condos, modular housing, some multi-unit properties and more.
3. They’re for primary residences only. You won’t be able to use your VA loan benefits to buy an investment property or a vacation home. VA loans are for primary residences, although you can use this benefit to buy a duplex or another multiunit property, provided you live in one of the units. The VA does offer exceptions, though lenders also have their own standards that might affect occupancy requirements.
4. They’re not issued by the VA. The VA isn’t in the business of issuing home loans. The agency provides a guaranty on each qualified mortgage loan and you as the consumer will choose the lender that you would like to work with.
5. But they’re guaranteed by the government. If you have a VA entitlement, the agency typically guarantees up to a quarter of the loan amount. The guaranty gives lenders confidence and helps service members secure great terms and rates.
6. They’re available despite foreclosure or bankruptcy. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit.
7. They don’t have mortgage insurance. Mortgage insurance is a monthly fee you pay with other programs when you’re not putting at least 20 percent down. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month.
8. There are loan limits. The VA does not cap the amount that a qualified buyer can borrow to buy a home, but there is a limit on the highest-value loan the Department of Veterans Affairs is allowed to guarantee without you making a down payment. The highest value guaranteed in Madison County without making a down payment is $453,100 for zero down payment VA loans.
9. They come with a mandatory fee. There’s no mortgage insurance with VA loans, but there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities. If you are getting a VA loan for the first time with no down payment, you need to pay a VA funding fee equal to 2.15% of the loan amount. If you do put down 10% of the loan, this fee is lowered to 1.25%. The exact percentage will vary based on your down payment and the type of veteran you are. If you were discharged for disability reasons, this funding fee is waived.
10. Closing costs aren’t covered. You can expect to pay between 1%-4%. The VA will cap your closing cost and you may be able to negotiate closing cost into your contract with the seller.
11. They have limits on co-borrowers. Having a co-borrower who isn’t your spouse or another veteran with VA loan entitlement will require a down payment. Not every VA lender offers these types of joint loans.
12. They don’t have a prepayment penalty. You can make extra payments any time you want, saving you a boatload in interest over the life of your loan. You can even structure your payments to automatically deduct a little extra every month. Just an extra $100 per month can shave years and tens of thousands of dollars from the balance.
13. VA-backed loans can be assumable. VA loans can be taken over by someone you sell the house to, even if that person isn’t a service member.
 
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