What Is a VA Loan?

Backed by the Department of Veterans Affairs, a VA loan is a type of mortgage that is available to anyone that has served in the United State military or is currently serving. Other qualified applicants include military spouses and reserve members. The VA does not lend the money used in these loans, but it does back the loan which comes from a private lender.

Types of VA Loans

There are three main types of VA loans. This includes purchase loans, cash-out refinance loans and interest rate reduction refinance loans. All three of these options come with benefits that you won’t find with a typical mortgage loan. For example, a down payment isn’t needed with a VA loan. The goal of this is to provide an opportunity for veterans and active military to own a home when they otherwise wouldn’t be able to afford it.

Eligibility

VA loans are structured in a way that benefits a certain demographic of people. This includes veterans, active-duty service members, reserve members, National Guard personnel and surviving spouses.

In order to qualify for a VA loan, you must have a good credit score, consistent income and have a valid Certificate of Eligibility. The home that you are attempting to purchase must be your primary residence. If you would like more information on eligibility requirements, you can visit the website for the Department of Veterans Affairs.

VA Loan Benefits

Although there are many different loan and mortgage options available from lenders all across the United States, there are benefits that are exclusively included in VA loans. Designed for military personnel and their family, VA loans do not have a private mortgage insurance requirement. They also provide a very flexible loan option for military members that don’t have a lot of startup income to work with. A home can still be purchased without a substantial down payment or a down payment at all. Other benefits include:

• Negotiable interest rates
• You can finance your VA funding fee
• Closing cost fees are limited
• Closing costs can be paid by the seller
• No prepayment penalties
• VA-inspected homes during construction provide a warranty from the builder
• Financial difficulty is taken into consideration, and assistance is provided to veteran borrowers that are in default

How Do You Apply for a VA Loan If You Are Eligible?

If you have determined that you are eligible for a VA loan, there are some steps that you can take to officially apply for your loan. This includes:

• You will need to obtain a Certificate of Eligibility from the VA in order to prove that you’re eligible to apply for a VA loan. Your lender may also have the ability to request one on your behalf.
• Finding a lender that participates in the VA loan program. There is plenty of information available through local banks, credit unions and online real estate websites.
• Work with the lender that you’ve chosen to complete the necessary steps for financing your new home.

The Process of Buying Your New Home

Once you’ve gone through the process of searching for a new home and have confirmed that you’re eligible for a VA loan, there are some steps you will take to move forward with the purchase.

Sign a Purchase Agreement

A purchase agreement is essentially a sales contract. In this document there should be a VA Escape Clause included. This option allows the contract to voided if the property isn’t appraised for the contract price. There may be other opportunities to void the contract, such as the failure of a home inspection. You can inquire with your real estate agent to find out more.

Complete a Home Inspection and Appraisal

It’s always a good idea to have a home inspected before purchasing a home. There are a lot of things that could be wrong with the property. You have a access to a VA-approved appraiser that will check everything out, confirming that the property meets all minimum property requirements. While you may receive an estimated value of the home, this isn’t the same thing as the bank appraisal.

When the bank comes to appraise the home, you could run into the issue of the appraisal value not being high enough to secure your loan. You have a few options if this occurs.

• Ask your real estate agent if they can show the lender the sales data that depicts the property being worth more than what it was appraised at. It is possible for the lender to reconsider.
• You can try to renegotiate the price of the sale. Let the seller know what the situation is, and offer them a lower price that is closer to the appraisal value.
• You have the option to pay the difference between the appraised price and the sales price. The money is paid at closing.

Review Paperwork

Before you are ready to close, you will sit down with your lender to go over different information. A closing disclosure should be filed a minimum of three days before you close on the property. This piece of documentation is very important, as it outlines the terms of the loan, closing costs, loan terms and your monthly payment amount.

Closing

When all of the necessary documentation is in place, you can close on your new home. The closing may take place at your attorney’s office or an escrow office. Then it’s time to move in and enjoy your new home!