If you are a veteran, read on to find out if you can save money with a VA loan. A VA loan is a mortgage loan program established by the US Department of Veterans Affairs to help veterans and their families obtain home financing, whether it is for buying a new home, refinancing an existing mortgage, repairing or improving your current home. Here I will go through the details of VA loans and explain the advantages and disadvantages that these kind of mortgages have to offer.
Pros And Cons Of VA Loans
A VA loan is a Department of Veterans Affairs home loan and it is a very popular option for home buyers. These loans don't require any down-payment and the appraisal fees and closing costs that a lender can charge are limited by the government. Apart from being available from most lenders, VA loans do not require private mortgage insurance (PMI). In fact, it is forbidden for lenders to charge PMI on VA loans. This is a huge advantage since it can add up to thousands of dollars of savings in the long run.
VA loan rates are generally in line with most conventional loan rates since they follow the market. The only major disadvantage is that there is a one-time funding fee which typically is around 2 percent. You can choose to finance this fee in the VA loan and it ranges from 0%-3.15%. Veterans can borrow up to 103.15% of the reasonable value or sales price of the home, whichever one is less. For refinancing loans from VA loan to VA loan (also known as an IRRRL - interest rate reduction refinancing loan), the fee is typically 5%. And borrowers can borrow up to 100.5% of the loan amount (the 5% is the funding fee for an IRRRL refinance). In refinances for a new VA loan, borrowers can borrow up to 90% of the reasonable value (in most states). It's important to calculate the total amount that this fee would amount to before getting a VA loan.
To qualify for a VA loan, you have to receive a certificate of eligibility (COE) from Veteran Affairs. To be eligible for a VA loan, borrowers must be an active or former member of the armed forces and meet a specific service criteria. Discharge conditions are also taken into account. Widows and widowers may also be eligible if their spouse's death was service-related. In 1992, the program eligibility began including Reservists or National Guards who have served at least 6 years & received an honorable discharge.
The maximum guaranteed VA loan limit with no down-payment is generally $625,500 (it is higher in certain states), but that doesn't mean that borrowers will all be entitled to that amount. VA loans - just like any other conventional loans - are based on credit history, income, assets and debt.
To sum it up, a VA loan's major advantage is its no down-payment program. However, since it generally comes with a VA funding fee, it is wise to check other types of loans like FHA loans, or conventional loans to compare them and see which one suits your individual needs best.