Posted February 13, 2014Tweet
For eligible mortgage borrowers, the VA loan from the U.S. Department of Veterans Affairs is among the best home loan programs available.
Offering 100% financing and very low rates, VA loans allow buyers to buy homes with no downpayment, with no mortgage insurance premiums (MIP), and with a host of other benefits including assumable loans and a special streamlined refinance program known as the IRRRL.
Here's an overview of what home buyers and homeowners need to know about today's VA loans. Or, just skip to the mortgage rates.
At its root, the VA loan is identical to any other home loan program. There is a starting loan size, a mortgage rate which determines your monthly payment, and an obligation on behalf of the borrower to repay the loan to the bank.
However, where the VA loan is different is that the monthly mortgage payments from the homeowner to the bank are "guaranteed" by the U.S. government. With a VA loan, the federal government guarantees that a portion of the loan will be repaid even if the borrower defaults on its terms.
Because of this guarantee, lenders can offer VA loans with attractive, low mortgage rates which often beat the mortgage rates of comparable FHA and conventional home loan programs.
If you are eligible for a VA loan, consider it for your next mortgage
The Department of Veterans Affairs doesn't directly originate or fund VA loans. Rather, VA loans are sought from banks, savings-and-loans, credit unions and other mortgage companies approved to offer VA-guaranteed loans.
There are hundreds of such banks and interest rates vary by bank.
VA lenders underwrite, approve and fund your VA mortgage based on program guidelines as issued by communicated by the Department of Veterans Affairs. During the application program, the VA also makes itself available for support and advice in obtaining a loan.
There are several terrific reasons to consider a VA loan. The first is that VA loans typically don't require a down payment; and they never require mortgage insurance premiums (MIP) to be paid by the borrower. VA loans can be obtained with little cash out of pocket.
In addition, most VA loans are assumable, which means the loan can later be transferred to another eligible borrower if certain requirements are met. In a rising mortgage rate environment, it can be a strong selling point to offer your home with an "assumed mortgage" at today's low rates.
Furthermore, VA loans have no prepayment penalty and are often available measurably lower interest rates and with much lower closing costs as compared to a conventional loans.
The VA guarantees purchase-money loans, home refinance loans, and loans that can be used to build a home or make repairs or improvements to a home.
Purchase-money loans can be used to buy an existing house or condominium; a new construction home or condominium; a manufactured home; or, a lot on which a manufactured home will be placed.
The VA also offers a special Energy Efficient mortgage (EEM) for homeowners adding "green" elements to a home and wishing to add construction costs to the borrowed amount as opposed to paying for the elements with cash.
Lastly, the VA offers a special refinance loan known as the Interest Rate Reduction Refinance Loan (IRRRL). Commonly called the VA Streamline Refinance, IRRRLs are simple, quick refinances which lower a VA borrower's mortgage rate in 30 days or fewer, in most cases.
Eligible borrowers for the VA loan program may include:
With a VA mortgage, borrowers should expect to pay customary closing costs and fees in conjunction with their loan. However, the Department of Veterans Affairs places limits on lenders regarding the types of fees charged, and amount charged for them .
Borrowers should also expect to pay a VA funding fee. This fee is a percentage of the loan amount and depends on the borrower's type of service, the purpose and type of loan, the size of the borrower's downpayment as a percentage of the purchase price or the home's value and other factors.
Funding fees are due at closing. Some VA borrowers pay the Funding Fee with cash. The great majority, though, just add the Funding Fee to their loan size.
Note that funding fees are normally is waived for veterans who receive VA disability compensation; and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
This is not an exhaustive list of VA mortgage loan requirements.
For example, in order to be program-eligible, a VA borrower must show a minimum length of service, an acceptable credit history or credit score, sufficient income and a valid Certificate of Eligibility (COE) to certify the borrower's eligibility.
Borrowers must also plan to make the subject home their principal residence -- a rule which is waived for the VA Streamline Refinance. With the VA Streamline Refinance, borrowers must only certify that the home was formerly a principal residence.
Mortgage lenders may apply their own overlays to a VA loan approval. "Overlays" are additional mortgage underwriting standards which do not appear in the official, published guidelines.
Banks don't share VA loan overlays -- each bank has its own. Therefore, if your VA loan is turned down by a bank such as Wells Fargo, that should not stop you from applying with another bank which may use a different set of overlays, or none at all.
Since the start of the year, mortgage rates of all types have been falling. VA loans, though, have dropped by the most. VA mortgage rates are near a 3-month low and underwriting remains fast and fluid at many U.S. banks.
See what a VA loan can do for your budget and your planning. Get started with a rate quote here. Rates are always free and with no obligation.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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