After serving their country, many veterans come back ready to build their lives and buy a home. However, since homes are expensive and veterans may not have the resources to buy a house, the U.S. Department of Veterans Affairs (VA) provides some financing options.
What Is a VA Loan?
VA mortgage loans are guaranteed by the Department of Veterans Affairs. These mortgages are not directly offered by the government ― they are issued by qualified lenders and then backed by the VA.
VA mortgage loans require a property appraisal to determine the value of a home, after which the VA will guarantee the mortgage lender against loss in case the borrower defaults. The VA guarantees mortgage loans up to $417,000 and no down payment is required (as long as the home’s sale price is less than its appraised value).
There are 3 categories of VA borrowers:
- Category A includes veterans, active duty, and Reservists/National Guard members who have served on active duty
- Category B includes Reservists/National Guard members who have never served on active duty
- Category C includes surviving spouses of veterans who died in service or as a result of service
To be approved for a VA mortgage loan, all veterans (Categories A and B) must first apply for a Certificate of Eligibility (COE). A COE informs lenders that you are eligible to apply for a VA loan.
The Benefits of a VA Loan
There are a number of benefits associated with mortgage loans guaranteed by the Department of Veterans Affairs. A VA loan gives veterans the opportunity to buy a home that they might not otherwise be able to purchase. For many veterans, VA mortgage loans can provide 100% financing with no down payment and no mortgage insurance. There are also no prepayment penalties if you pay-off your VA mortgage loan early. However, you may be responsible for covering some closing costs and other lending fees.
Another option that VA borrowers have is to refinance ― there are VA programs for veterans who want to refinance their current mortgage loans. You may choose to refinance your existing mortgage balance to a lower interest rate, or you may consider getting a cash-out refinance (for up to $144,000). So even if you’re not looking to purchase a house, there are still a variety of home financing options offered by the VA.
As a borrower, you are protected in certain ways when you get a VA mortgage loan. First of all, lenders that do not meet the VA lending requirements can be removed from the program, so you are less likely to encounter unscrupulous lenders. Additionally, if you buy a new construction dwelling, the builder is required to provide you with a one-year warranty.
If you are a United States veteran, it may be a good idea to look into VA mortgage loans. A VA loan can offer competitive interest rates and provide veterans with the opportunity to buy a home.