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VA Loans: All Your Questions Answered
VA home loans are popular with eligible veterans due to their unique and money-saving benefits, including the fact they don’t require private mortgage insurance (PMI). To help in your search for the best VA loan for your needs, we included all the most common questions and answers in this FAQ.
What are the main benefits of signing up for a VA loan?
Unlike traditional home loans that require a hefty down payment to qualify, VA home loans require no money down. This makes these loans considerably more attainable for eligible veterans who want to buy in an expensive market, or for any eligible servicemember who simply wants to purchase a property without a down payment.
Another benefit of VA loans is the fact that these loans don’t require private mortgage insurance, or PMI. Instead, you’ll pay an upfront funding fee for your VA home loan, although the funding fee can be waived for qualifying disabled veterans.
VA home loans also come with a cap on closing costs, as well as competitive interest rates.
What kind of fees are involved with a VA loan?
The funding fee for VA loans can vary since it depends on your down payment (if you have one) and whether you’re using your VA home loan benefit for the first time. For first-time VA home loans with less than 5% down, however, the VA funding fee is normally 2.3% of your home mortgage amount upfront. However, you should be aware that you can roll the funding fee into your loan amount if you don’t want to pay this amount in cash at closing.
Other expenses you’ll need to pay for your home loan can include upfront interest costs and any points you pay for a lower interest rate. Other closing costs include:
- Loan origination fee
- Termite report
- Credit report fee
- VA appraisal fee
- Hazard insurance and real estate taxes
- State and local taxes
- Title insurance
- Recording fee
As a homebuyer, you may be able to get the seller of the home to pay for some of these fees on your behalf.
Who is eligible for a VA loan?
To be eligible for a VA home loan, you must have eligible service as an active duty military member or veteran, or eligible service in the National Guard or Reserves. This service will help you qualify for a Certificate or Eligibility (COE) you can use to qualify for a VA home loan. The COE can be obtained directly from the VA, but your lender may also be able to get yours for you when you apply for a VA loan.
Qualifying for the actual VA home loan is between you and the lender. However, most lenders require borrowers to have a credit score of 620 or greater.
Can you refinance your home with a VA loan?
You can use your VA home loan benefit to refinance a home you already have, and you may even be able to do so with extremely limited out-of-pocket costs. With an Interest Rate Reduction Refinance Loan (IRRRL), for example, you can refinance the current VA loan you have in order to qualify for a lower interest rate and save money over time.
With an IRRRL, you won’t have to pay for an appraisal or go through credit underwriting to qualify. That makes these refinance loans especially attractive for consumers whose credit is imperfect but could qualify for a lower interest rate otherwise.
Also be aware that the VA offers cash-out refinance loans that lets you tap into your home equity and receive some cash back at closing.
Should I shop around for a VA loan?
While VA home loans are backed by the federal government, you should still shop around and compare loan options and lenders. Since each lender sets their own criteria for VA home loan approvals, you may find that some lenders will approve you for a loan where others may not.
VA lenders can also compete in terms of interest rates and loan fees, so you’ll want to shop around and compare a variety of loan options before you pull the trigger.
Why are VA loans ideal for first-time homebuyers?
Where homebuyers who use a traditional home loan usually need to put down at least 5% of the purchase price to qualify, VA home loans let you secure a mortgage and become a homeowner without any down payment requirements. Qualifying for a VA loan is often easier than qualifying for a traditional home loan as well since VA loans are backed by the government.
Also note that, without a requirement for PMI, your monthly payment will likely be lower than if you had used a traditional home loan. Since closing costs are also lower on VA loans, you’ll save money on that part on the transaction, too.
What kind of homes can you purchase with a VA home loan?
Like other types of home loans, VA loans can be used for a wide range of properties and circumstances. You can use a VA loan to purchase an existing property, but you can also use a VA home loan to build a new home. This type of loan can also be used for a manufactured home or a multi-unit property with up to four units provided the homebuyer plans to live in one.
Do you have to live in the home?
VA home loans are only eligible for properties the homebuyer plans to live in as a primary residence. For that reason, VA home loans aren’t useful if you plan to buy a second home or a vacation property to rent on Airbnb.
How do I apply for a VA home loan?
We suggest comparing lenders on this page for your VA home loan, as well as taking the time to get VA loan quotes from at least three companies you may want to do business with. Once you find a lender you’re comfortable with, they will help walk you through the process, letting you know about all documentation you’ll need.
Not only will you need a COE to apply for a VA home loan, but you’ll also need to submit common loan documentation such as pay stubs, bank statements, and tax returns from the last two years. You’ll also need to present a copy of your government-issued photo identification and submit a full loan application.