VA Loans: Understanding The Process

VA Loans are home loans for America's veterans that are guaranteed by the government against default. One of the main benefits of a VA home loan is that you can borrow up to 100% of the purchase value of your home. Here's what you should know about VA home loans to better understand the process.

Advantages of VA Home Loans

The main advantage of a VA home loan is that you can buy your home without a down payment. The Veteran's Administration does not lend money for home loans, they simply guarantee the loan, protecting the lender from certain losses if you default. This government backed guarantee allows many lenders to relax credit requirements making it easier veterans to get their home loan approved.

Eligibility Requirements for VA Home Loans

Your individual eligibility requirements for a VA mortgage depend on your type of service and how long you served. If you served a minimum of 181 days during peacetime or 90 days during a conflict you could be eligible based on your dates of service.

If your enlistment started after 7 September, 1980 or were commissioned after 16 October, 1981 you will need to have served a minimum of two years to be eligible. Members of the National Guard or Reserves need to serve a minimum of six years.

In addition to meeting the military service requirements for a VA home loan, many lenders will require a minimum credit score and income verification. Finally, VA home loans are not allowed for investment homes as the property must be owner occupied.

Loans for Purchase, Refinance, & Streamline IRRRL

VA home loans can be used to purchase a new home, refinance a conventional mortgage, or streamline refinance an existing VA mortgage loan.

If you're purchasing, you can buy your new home without a down payment. VA loans allow you to borrow up to 100% of the purchase price without paying for private mortgage insurance.

If you're refinancing, you have the option of taking cash out while refinancing your non-VA mortgage loan. Homeowners that purchased their homes with a VA loan can take advantage of lower interest rates with the VA's version of a streamline refinance known as an Interest Rate Reduction Refinance Loan or IRRRL.

Regardless of the type of VA home loan that you need, you'll be required to pay a funding fee of as much as 3.3%. This funding fee can be rolled into your VA mortgage balance.

In addition to the funding fee, you will be required to pay closing costs like any other mortgage loan. These closing costs could include the loan origination fee, discount points, appraisal fee, title and recording fee, credit reports, hazard insurance, as well as any property taxes.

Minimum Credit Score & Maximum Loan Amounts

There are no minimum credit score requirements set by the Veteran's Administration; however, most lenders require a minimum credit score of at least 620 in order to be approved.

The Veteran's Administration does not specify a maximum loan amount but will only guarantee up to the conforming loan limit. This limit is $417,000 in most parts of the country.

How to Apply for a VA Home Loan

Applying for a VA home loan is not unlike applying for any other mortgage loan. You will need to contact prospective lenders directly and compare rate quotes and fees. Before applying for a VA mortgage loan you will need to obtain your certificate of eligibility by contacting the Veteran's Administration. You can request a certificate online or through the mail.

Once you've obtained your certificate it's important to do a little comparison shopping of interest rates and fees to insure you're getting the best deal for your next home loan.

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