Since 1944, VA loans have been a key resource for military personnel and veterans looking to get into their first home. In fact, 80 percent of applicants that qualify for VA loans would be turned down by conventional lenders.
Guaranteed by the Federal government, VA loans dramatically reduce the cost of a new mortgage. Participating lenders routinely negotiate interest rates with the consumer and drop all requirements for a down payment. Moreover, there are no requirements for private mortgage insurance unless the applicant is financing more than 80 percent of the home's value. Eligibility is determined based on length of service, duty status and character of service.
Eligible veterans can borrow up to $417,000 with no down payment. In the higher-priced American communities, VA applicants may borrow up to $1,094,000.
VA Mortgage Risks
Even with VA backing, home ownership comes along with an element of risk in today's times. By estimating their monthly payments, vets can rule out properties they cannot reasonably afford. A monthly payment can include principal/interest, property taxes, homeowners insurance, and the VA Loan Funding Fee (amortized). VA borrowers can determine their projected monthly mortgage payments using LendingTree's VA Loan Calculator.
The Federal government has built considerable debt protection into VA-backed loans through legislation that cap interest rates at 6% on home mortgages, credit card balances, student loans and vehicle loans. The Military Lending Act of 2006 prevents gougers offering products like payday loans or exorbitant rates on car loans.
Despite knowing how much their house payments are, even the most well-intentioned military or post-military families can get swamped with credit card debt, medical bills, divorce or disruptions in employment. VA Regional Loan Centers (1-877-827-3702) offer credit counseling to help borrowers avoid foreclosures.
Debt Consolidation Options
That said, veterans may still need to consider debt consolidation and credit counseling to avert delinquencies or foreclosures. According to the National Federation for Credit Counseling (NFCC), military members seeking help shoulder a debt of $10,000, on average. Debt consolidation options include cash-out refinancing, home equity loans, personal loans and balance transfers. VA Consolidation Loans can re-finance outstanding balances on revolving credit, vehicle loans, and lines of credit.
Consolidation alternatives include:
- VA Loan Modification – The lender agrees to create a loan that absorbs the existing delinquencies into a new installment plan that the borrower can afford.
- VA Interest Rate Reduction Refinance Loan (IRRRL) – Lowers monthly payments without any additional out-of-pocket fees. Used only on property where the borrower has already used up their eligibility. Read more here.
- VA Cash-Out Refinance Loan – Take cash out of home equity up to 100 percent of current value for bills, repairs, and existing high-interest debt.
- Special Temporary Forbearance – Given to borrowers anticipating a documented financial windfall to change their financial conditions.
- Installment Plan on Missed Payments – Borrowers must still make current payments while paying off the delinquencies.
- Zero Interest Credit Cards – Caution: introductory only.
- Personal Loan – Up to $35,000 (five-year term).
A great resource for veterans in trouble with their finances is the U.S. Department of Veterans Affairs Debt Management Center, (1-800-827-0648).