From a hefty down payment to covering mortgage insurance, closing costs and other fees, the path to homeownership can be daunting. But if you’re a veteran or military homebuyer, VA home loan programs may be a major advantage to help you secure the keys to your family’s new home.
VA home loans are one of the most unique loan programs in the country, and the incentives are substantial, including no down payment, better terms, lower interest rates, and more. If you’re a veteran looking into VA loans, here’s your step-by-step guide answering your key questions to get better acquainted with the home loans program designed specifically to help you.
What are VA Loans?
VA home loan programs are offered by the U.S. Department of Veterans Affairs and help veterans buy, build, or improve a home or refinance current home loans.
The program was established in 1944 after World War II to help returning service members buy homes without the added pressure of a downpayment and high credit score. The program is a major success story: recent figures suggest it has guaranteed more than 24 million VA loans, helping U.S.veterans and active military staff who may have faced difficulty in securing a mortgage buy the homes of their dreams.
Essentially, VA loans are backed by the government department, acting as a guarantor on your mortgage. A common misunderstanding is the government issues home loans. To be clear, the majority of the time it doesn’t – it simply guarantees loans issued by private lenders, such as banks and mortgage lenders. Veterans and military homebuyers need to show their eligibility for the VA loan to lenders, then the government appraises the property they’re hoping to buy along with other financial requirements. If it’s satisfied with the risk involved, the government will guarantee the lender against any loss of principal.
Because of this government backing, there’s decreased risk for the lender. In turn, they’re more likely to hand out loans under much better terms. The Department of Veterans Affairs says nearly 90 percent of all VA-backed home loans are extended without a down payment. This is a sizeable benefit for those who can make use of the loan – these days, conventional loans require a down payment of at least 5 to 10 percent. For instance, a 5 percent down payment on a $350,000 home is$17,500; a 20 percent down payment on the same home is $70,000.
Are There Different VA Loans for Different Circumstances?
Yes, there are four VA-backed loan types and while they’re all backed by the government, they each come with distinct purposes to help you finance your home. They include:
Purchase loans: These are the most common of VA loans and allow you to buy a single-family home, buy a condo in a VA-approved project, build a new home, buy a home and improve it, or buy a manufactured home or lot. You can even use this loan to add energy-efficient features to your home.
Native American direct loans: If you’re a veteran, and either you or your spouse is Native American, the NADL program helps you buy, build, or improve a loan on Federal Trust Land.
Interest rate reduction refinance loan: These loans are for those with online payday loans West Virginia existing VA-backed home loans who want to reduce their monthly mortgage payments by getting a lower interest rate or make monthly payments more stable by moving to a fixed interest rate.
Cash-out refinance loans: These loans help you refinance a non-VA loan into a VA-backed loan. You can also use this loan to take cash out of your home equity to pay off debts or cover other financial needs.