Veterans Affairs(VA) Loans
In a Nutshell
What are Veterans Affairs (VA) Loans?
VA loans are offered by the U.S. Department of Veterans Affairs to active duty, retired, and reserved military members. Some surviving military spouses are also eligible for VA mortgage loans.
These loans are government-guaranteed, meaning that the government protects a portion of the total loan amount to lenders in the event a borrower defaults on their loan. This guarantee allows lenders to offer more flexible terms, interest rates and down payment options to veterans who might not qualify for other types of loans.
VA loans, while primarily used to purchase an existing home, can also be used for new construction, renovations and remodels, or even for refinancing an existing mortgage.
What to Know Going In
Loan Requirements
Due to the nature and intended recipients of VA loans, all applicants are required to apply for a Certificate of Eligibility (COE) from the U.S. Department of Veterans Affairs. This is the first step in applying for a VA mortgage loan.
Once that requirement has been met and the full VA loan has been approved, it’s important to note that a funding fee is also required. This is different from a down payment in that the funding fee does not go toward the total balance of the VA loan. Rather, it goes towards covering the administrative costs associated with securing and funding the loan.
VA loans also require that they are used exclusively for primary residences. VA loans can not be used to purchase second homes, investment properties, or vacation rentals.
The Upside
Benefits of Veterans Affairs (VA) Loans
VA loans are designed to get military members and their families into home ownership with as little red tape as possible. Because of this intent, VA loans don’t require any down payment whatsoever. Borrowers can still choose to make a down payment, but these loans are built to be as flexible as possible, requiring very little cash to get approved and close on a new home.
VA loans are also different from Conventional, FHA and other loan types in that they have no primary mortgage insurance (PMI) requirement. Regardless of making little to no down payment, these loans don’t carry the added encumbrance of paying for mortgage insurance at any point.
Closing costs are typically lower than that of other mortgage loans, and interest rates are often more competitive than those of Conventional Loans.