5 Things You May not Know about VA Loans

VA home loans are guaranteed by the US Department of Veterans Affairs (VA) as a benefit to eligible servicemembers and veterans. While most people know that VA loans require no down payment, there are other cool things you may not know about VA loans.

#1. Spouses May Benefit

VA regulations allow un-remarried surviving spouses of veterans and servicemembers deceased during active duty or due to service-related conditions to apply for VA home loans. Eligible borrowers are those who have

  • Survived a spouse who died in service or from a service-related disability
  • Survived a spouse who was missing in action (MIA) or a prisoner of war (POW) for at least 90 days (limited to one-time use of benefit)
  • Survived a spouse who was rated continuously totally disabled for the specified period of time, and was eligible for disability compensation at the time of death by any cause.

#2 No Minimim Credit Score

There is no minimum credit score requirement for a VA home loan. VA-approved mortgage lenders are required to evaluate applicants' overall credit, income and finances to ensure that borrowers can meet their mortgage payments and afford their living expenses.

Applicants should understand that while there is no minimum credit score, those with truly awful credit are unlikely to be approved for VA home financing. In addition, lenders may add minimum credit scores or other conditions (called overlays) if they choose. If one lender will not approve a VA loan, it may be worthwhile to look for another one that does not impose stricter-than-necessary requirements.

#3 Assumable

Home sellers with VA loans gain a strong advantage from their assumability feature. The New York Times reports that assumability can be a useful asset in a climate of rising interest rates. If buyers can get a lower rate by purchasing one home rather than another, it gives the VA seller a competitive advantage. Assuming can be easier, faster and less expensive than obtaining a brand new loan.

Homeowners who want to offer their loans for assumption should get prior approval from their lender or loan servicer or the VA. This releases them from liability should the new buyer default on the loan. The VA warns borrowers not to proceed with a VA loan assumption without prior approval. Those who do could get a notice from the VA that their loan is "due on sale", even if all payments are on time and current.

#4 Grants for Disabled

VA loans can be combined with VA grants to purchase, build or renovate homes occupied by disabled veterans and servicemembers. In addition to standard VA home loans, the VA provides grants to eligible veterans, servicemembers or family members for building, purchasing or adapting an existing home to provide accessibility and boundary-free living space for veterans and servicemembers whose disabilities are connected with their military service.

The Specially Adapted Housing grant (SAH), Special Housing Adaptation grant (SHA) and Temporary Residential Assistance Grant (TRA) are directly funded through the VA but can be used in connection with a VA home loan to build, purchase and modify homes for occupancy by disabled veterans and servicemembers.

#5 Rentals Okay

Homes financed with VA loans can be rented out under certain circumstances. VA home loan rules require borrowers to certify that they intend to occupy the property being financed, so VA loans can't be used to finance rentals unless the borrower purchases a duplex, triplex or fourplex and occupies one of the units. Homeowners applying for the VA's Interest Rate Reduction Refinance Loan (IRRRL) do not have to occupy the home being refinanced, but must certify past occupancy.

In addition to these five facts, there's another important VA loan feature. The government wants you to know that it does not set VA mortgage rates; the loans are backed by the VA and funded by private mortgage lenders. These lenders set their own rates, and the VA recommends that you get quotes from competing lenders and shop for the best rate.

Discuss individual needs with VA-approved mortgage lenders to help identify how VA loans can benefit you.


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