A VA loan is a mortgage program buy the Un designed and backed by the U.S. Department of Veteran Affairs (VA), previously known as the Veterans Administration. With VA loans, veterans and service members who have served 181 days during peacetime or 90 days during wartime, as well as surviving spouses can purchase or refinance a home with extremely competitive interest rates, no down payment, and no upfront or monthly mortgage insurance.
The U.S. Department of Veteran Affairs (VA) provides insurance, or “guarantees” the mortgage for lenders in the case a borrower defaults on the mortgage. Due to the mortgage being guaranteed, lenders are willing to offer better terms to those who qualify in the form of reduced closing costs, no prepayment penalties, and more. Additionally, the U.S Department of Veteran Affairs offers assistance to help borrowers avoid default. This assistance as well as VA mortgages are available in all 50 states.
Types of VA Loans
- Home Purchase Loan
- IRRL (Interest Rate Reduction Refinance Loan)
- Cash-Out Refinance Loan
- Native American Direct Loan
VA Loan Requirements
- Minimum FICO of 600 (may vary by lender)
- Must have adequate entitlement
- Must meet ability to repay/residual income requirements
Exploring VA Loans
The VA home loan was designed in 1944 by the United States government to help service members returning from war the chance to purchase a home without excellent credit or a down payment. VA has collectively guaranteed over 25 million home loans helping veterans, active service members, and surviving spouses either purchase or refinance a home; in turn, making the VA loan one of the most historic mortgage programs in the USA.
VA Loan Limit
Qualified veterans can borrow as much as a lender is willing to loan out without the need for a down payment. VA loan limits only come into play for buyers with less than full entitlement, usually from having one or more VA loans or because of the loss of a previous VA loan due to foreclosure.
The purpose of VA guaranty is to encourage lenders to make VA loans by protecting loan holders and lenders against loss, up to the amount of the guaranty which is based on the veteran’s available entitlement, in the event the loan is terminated by foreclosure.
VA Funding Fee
The VA funding fee is charged to the borrower and goes directly to the VA in order to keep the program running for future generations and also alleviate taxpayers from having to foot the bill.
Subsequent use (can they use a VA loan again)
Restoration of Entitlement
Qualified VA borrowers may contact the U.S. Department of Veteran Affairs and request to have their entitlement fully restored for the purpose of another home purchase using a VA loan.
- May only have entitlement restored one time
- Must have sold property purchased with previous VA loan and the loan paid in full, or
- A qualified Veteran both agrees to assume the VA loan and substitute their entitlement for the entitlement originally used by the veteran seller, in the same amount.