Considering a VA Loan
A VA loan is a major benefit to eligible service members, veterans, and their surviving spouses. The VA loan will allow you to qualify for low cost financing and can even include those without stellar credit.
Regardless of credit or borrower risk, VA loans provide a flexible tool to help get you in your home.
Understanding how a VA loan works can get you into a home much faster than traditional lending methods.
How A VA Loan Works
VA Home Loans are loans offered by private lenders that are partially backed by the Department of Veteran Affairs.
Benefits
It’s important to note that VA Loans are not offered by the VA, but rather the loan offered through the private lender is partially backed/guaranteed by the VA. With this important distinction in mind, let’s talk a little more about the benefits on a VA Loan.
The benefits include, but aren’t limited to:
- No down payment
- Flexible credit requirements
- No Private Mortgage Insurance
- Can be used more than one
Arguably the most valuable benefit of the VA loan is the no down payment requirement. Oftentimes on conventional loans, you’ll see private lenders looking for a 20% down payment and at the very minimum, 5% of the home’s value.
With the VA Loan there is no down payment requirement, allowing you to save significant upfront cash and even being able to buy a house without the years of saving that often go into it.
Flexible Credit
Next we have the Flexible Credit Requirements. Because VA Loans are backed by a government agency, private lenders are more likely to lend out money to borrowers with a checkered past.
From the lender’s perspective, you would be much more likely to loan money knowing that if the borrower did default at some point, there’s a guarantee of getting some of your money back.
It’s important to remember that just because you qualify for a VA Loan, you’re not entitled to borrow whatever amount of money you’d like, there are limitations much like a conventional loan. Any borrower will still have to go through the lenders credit checks and meet solvency requirements.
No PMI Requirement
That leads us to the next benefit, no private mortgage insurance. Private mortgage insurance (PMI), as we discuss in our Mortgage Terms to Know guide, is a vehicle that the lender uses to protect them in the event that the loan is defaulted on.
PMI is usually required when a home buyer puts down less than 20% of the home’s value for their down payment, therefore can be seen as having higher risk to a lender. If you qualify for a VA Loan, Private mortgage insurance is a monthly cost that you no longer have to pay regardless of how much money you put down.
Continuous Benefit
Lastly, something that borrowers sometimes don’t realize is that VA Loans are reusable, as long as you can pay off your current loan, and there are even some circumstances in which you can qualify for two concurrent VA Loans.
There are other loan offerings out there that only allow you to use for your first home, it’s important to know that you can use the VA Loan as many times as needed.
VA Loan Requirements
VA loans are limited in a few ways. These loans are only available to use for a Primary residence and homes that are in good enough condition to move in immediately.
If you were looking to buy a property solely as an investment property or a fixer-upper, you wouldn’t be able to do so using a VA Loan. The VA loan requires you to live in the property, so many borrowers buy multi-family units and rent out rooms/units. In essence, there are ways to use the VA loans as an investment vehicle and setting yourself up for a better future, but be sure to consult with a Realtor before making any decisions.
Qualifying for a VA Loan
So with all of these great benefits, how do you qualify for a VA Loan?
You will need to achieved one of the following milestones:
- Served 90 days of active service during wartimes
- Served 181 days of active service during peacetime
- Spouse that is disabled or that passed away on duty
- 6 years in the reserves or national guard
You will need to apply for a Certificate of Eligibility by filling out your information online and providing all necessary documentation to prove that you are eligible for a VA Loan. For any questions about eligibility, visit the VA website for more information.
Closing Out
Consider a VA Loan as a flexible borrowing option provided to Veterans, Service Members, and their surviving spouses in order to become a homebuyer in an easier fashion than conventional loans allow.
With no money down, eased credit score limits, and no PMI requirement, you’re able to get yourself in a home without some of the hassles of borrowing outside of a VA Loan. If you qualify based on the above criteria, understanding how a VA loan works and how it’ll benefit you can help you achieve your home buying goals.
Reach out if you have any questions about whether or not you qualify, or are ready to get started to find your next home.
