VA Loans – How Do VA Loans Work?
There are special programs put in place to assist members of the military service. This includes VA loans, which are flexible lending options guaranteed by the Department of Veterans Affairs and issued by VA-approved lenders. The VA helps protect against default by promising to pay one quarter of each loan it guarantees, which helps give lenders the confidence and protection they need to lend. As a result, lenders may offer these loans at far more competitive rates and more lenient terms than they ordinarily would make available. It’s helpful to learn a little bit more about how these loans work, to find out if this is a good option for you and your family’s needs.
Benefits of a VA Loan
Because of the competitive rates that are available through VA-approved lenders, these types of loans can provide a number of different benefits for borrowers. The most important benefit for many borrowers is the fact that they can purchase a new home with no money down. This is one of the only ways that you can obtain a home with 100 percent financing, making VA loans unique in this respect. In addition, because your loan is guaranteed by the VA you will not pay private mortgage insurance (PMI) which is normally required for anything less than a 20% down payment. Another benefit to consider is that VA Loans provide for more lenient criteria when compared to other loans.
What are the Eligibility Requirements?
Millions of active-duty military service members and veterans alike can participate in the VA loan program. If you spent a minimum of six years in the National Guard or Reserves, are the surviving spouse of someone who was killed in the line of duty, served three months of duty during war time, or have served 181 days of active service duty in general you are eligible. For full eligibility criteria you can view the comprehensive here.
What can I use my VA for?
Once you have determined that you are in fact eligible for VA loans you may be wondering what they can be used for. For purchases: you can use your entitlement to buy a house, condo, coop, mobile home, and the property that you plan on building a home on. You can also refinance a non-VA Loan into a VA Loan or an existing VA Loan. Existing VA Loan holders can refinance to simply lower their interest rate known as an Interest Rate Reduction Loan or IRRL. Or, existing VA Loan holders can refinance while taking cash out which is known as a VA Cash Out Refinance. You can also use the loan to make energy efficient home improvements. While VA Loans are required to be owner occupied you can purchase a home with up to 4 units. This would allow you to live in one unit and rent the others.