10 Must-Know Things Before Applying for a VA Loan
Veterans Administration (VA) loans are among the most popular types of loans used in today’s financing market. They provide many benefits to qualified borrowers and are mainly used for purchasing, refinancing, and even home improvement.
Here are 10 important things one should know before applying for a VA loan:
1) A secured loan. A VA loan is a US Department of Veterans Affairs secured loan, which means that the lender who provides financing to the borrower is protected from loss if the buyer fails to repay the loan.
2) Not everyone can qualify for a VA loan. One needs to be a veteran or active duty service personnel in order to qualify for VA funding. Veterans can apply for VA financing with any mortgage lender that participates in the VA Home Loan program, and must submit a valid Certificate of Eligibility (COE) along with credit and income requirements in order to qualify for the loan.
3) Offers lower rates than normal to eligible veterans. With a VA loan, the borrower typically receives a lower interest rate than is normally available with other types of loans. Also, a VA loan can be used to get lower rates on refinances of up to 100% of the loan amount.
4) Provides more flexible credit guidelines. The minimum acceptable credit score for a VA loan is about 620, however, depending on unique circumstances, some lenders may accept a credit score as low as 550. Also, although other types of loans may offer similar credit score guidelines, only the credit score 620 For a conventional loan or an FHA loan, there will be more obligations to the borrower and will require a larger down payment.
5) No Private Mortgage Insurance (PMI) is required on VA loans, and the software can also be used to unlock MI on other loans. For example, one can refinance an existing loan by changing their loan program to a VA loan, thus, getting rid of the PMI and lowering the monthly mortgage payments. Although mortgage insurance is not required for VA loans, the VA does charge a financing fee for issuing security to the lender against the borrower’s default on the mortgage; However, unlike PMI, which is present for the life of the loan on other types of loans such as FHA and USDA loans, financing charges (FF) may be paid in cash upfront by the buyer or seller, or may be funded into the loan amount. There are also lender-paid financing fee credit options available on VA financing if requested up to 3.3%, and some veterans may be exempt from paying financing fees on their loan (additional documentation required).
6) Veterans Administration loans do not require a down payment. A VA loan usually does not require a down payment, however, if the loan amount exceeds the VA limit for the county in which the property is located, the borrower will have to submit a down payment. The down payment will vary depending on the borrower’s remaining VA benefit amount and the purchase price or appraised value of the home and will be a percentage of the difference between the two.
7) A person may qualify for more than one VA loan at the same time. There is no limit to the number of VA loans one can take out at once as long as there is VA entitlement left to use. For loans over $144,000, the benefit amount is typically 25% of the VA funding limit for the county in which the property in question is located.
8) There is no prepayment penalty on Veterans Administration loans. Any VA loan can be paid off in full at any time, which is a huge advantage because it can help one save huge amounts of money on interest.
9) The seasoning period for bankruptcies, foreclosures, or short sales is shorter for VA loans than for other loan types such as conventional or FHA loans. In most cases, one can qualify for a VA loan 2 years after filing for bankruptcy or foreclosure on their home as opposed to the 4-year period for bankruptcy and 7 years for foreclosure on a traditional type loan.
10) It can only be used to purchase a basic residence. VA benefits cannot be used to purchase a second home or investment property; However, it can be used to refinance a previously occupied VA loan as an interest rate lowering primary residence (VA IRRL).