The Veterans Administration (VA) provides a host of financial and healthcare benefits to veterans who’ve served their country. One of the most widely used of these benefits is the VA Home Loan Guarantee Program, which helps eligible veterans secure home loans with favorable interest rates. While the VA doesn’t directly grant home loans to veterans, it does ensure that private banks follow certain standards and offer specific benefits to qualified veterans. VA home loans are available for a variety of situations including purchasing a new home, having an existing home modified or building a new home.
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VA Home Loan Essentials
Buying a new home can be a confusing and expensive process. However, veterans get extra help thanks to the VA home loan program. This government-backed guarantee program provides veterans with the financial backing that they need to secure the best loan terms possible. Most private financial institutions and lenders who work with the program offer tailored VA loan packages that take into account the benefits that servicemembers and veterans have earned.
As with other benefits offered by the VA, veterans must meet certain criteria before they can get help with a home loan. To be eligible for a VA-guaranteed home loan, applicants must be either
• an active-duty service member who has completed at least 90 days of duty,
• an honorably discharged veteran from one of the qualified wartime and peacetime periods, or
• the surviving spouse of a veteran who would have been eligible for the program.
As part of its overall service program, the VA also offers grants to disabled veterans who need to modify their current homes to accommodate service-connected disabilities.
Native American veterans may be eligible for the Native American Direct Loan (NADL) program. This program allows veterans to buy, build or improve homes on Federal Trust Lands. The NADL program may also be used to reduce mortgage interest rates. Participation in the program varies by tribe, and veterans must have a special Certificate of Eligibility (COE) in order to participate.
In general, VA loans can be used to help veterans, service members and surviving spouses meet their personal housing needs. VA loans can be used to
• buy a home or a residential condo,
• build a new home,
• purchase and improve a home at the same time,
• refinance an existing non-VA loan,
• refinance an existing VA loan,
• buy a manufactured home to be permanently attached to an existing property or
• buy a manufactured home and the property to which it will be permanently attached.
In some cases, VA loans can also be used to make energy-efficient improvements to homes.
Veterans who choose VA home loans get more than government backing and the general benefits afforded to all mortgage borrowers. They also get special benefits that help make buying a home more affordable. For example, many VA loan borrowers aren’t required to make a down payment. Buyers are also not required to carry standard mortgage insurance. A set amount of money referred to as earnest funds is all that’s needed for many buyers to get the process started.
In some cases, VA loans also feature interest rates and closing costs that are lower than those associated with conventional loans. Veterans who are struggling to make payments on their VA loans may be eligible for refinancing or for help from professional loan counselors. Borrowers who wish to pay off their loans early benefit from VA loans too. Unlike many conventional mortgages, there are no payment penalties for borrowers who want to pay off loans before they’re due.
Many veterans who use the program do have to pay a loan funding fee. However, there are special exceptions for disabled veterans. Those who are currently receiving VA compensation for a service-related disability or those who would be eligible to receive such compensation don’t pay funding fees. The surviving spouses of veterans who died from service-connected disabilities also have these fees waived. Recently separated veterans who’ve received a predischarge rating that qualifies them for VA compensation are covered under this provision too.
Loan limits are one of the biggest factors that homebuyers must consider when shopping for a new property or pricing improvements to a current property. Because the cost of housing varies from county to county, the VA uses different loan limit rates depending on where veterans are buying. In much of the U.S., the VA set the 2016 loan limit at $417,000. In counties where the cost of buying a house is significantly higher than others, the VA sets different limits and will guarantee up to 25 percent on loans over $144,000.
Both current and potential homeowners use loans for a variety of purposes, and there’s no exception when it comes to VA home loans. To accommodate the needs of buyers and homeowners, the VA recognizes three different types of loans.
Purchase loans are true to their name and are used for the purchase of a home. Most of the time, there’s no need to pay a down payment or buy mortgage insurance to obtain a VA-backed purchase loan.
Streamline refinance loans, also known as Interest Rate Reduction Refinance Loans (IRRRLs), help borrowers with a current VA home loan secure a lower interest rate by refinancing. These loans can also be used by veterans who want to convert a VA adjustable rate mortgage (ARM) into a standard fixed-rate mortgage.
Cash-out refinance loans can be used by current homeowners who want to cash out the value in their property to pay off other debts, send a child to college or fund home improvements. Homeowners who originally purchased with a non-VA loan can use cash-out refinance loans to refinance their current mortgages into VA-backed mortgages. These types of loans can guarantee up to 100 percent of the value of a home.
The VA Home Loan Guarantee Program is well respected by lenders, which makes it an excellent option for veterans and service members who want to buy homes. So long as they’ve met the basic eligibility requirements, veterans can obtain the certificate needed to start the VA loan process. Of course, individual lenders conduct credit checks and verify income before granting VA loans.