How do VA home loans work? The answer is surprising. Loans are not given out by the VA, the VA only insures loans given by a traditional lender.
How do VA home loans work? Contrary to popular belief the VA does not lend money to purchase homes. The VA acts as an insurer, guaranteeing a loan made by a traditional lender against default. With this being the case many military members wonder why a VA insured home loan benefits them? The VA insures the mortgage for up to 100% of the loan value, which prevents the borrower from having to pay private mortgage insurance. The VA also has stipulations requiring its lenders to meet certain standards, protecting the borrower from predatory lending practices. For a qualified member of the military, a VA loan is an excellent choice.
How can I begin the process of applying for a VA home loan?
The first step toward obtaining a VA home loan is for the borrower to apply for a certificate of eligibility (COE). A COE is proof that the borrower has served in the military. The lender will then process the loan by running the borrowers credit report to ascertain how much of an entitlement the borrower qualifies for. The entitlement is an amount guaranteed by the government in case of default on the loan.
How do VA home loans work when compared to conventional loans?
Probably the largest benefit to a VA loan is that in most cases a down payment is not required. The borrower will have to pay a funding fee, typically 2.5% of the loan amount for a first time VA loan, but this is calculated as a part of the mortgage. VA loans also typically put a cap on the amount paid by the buyer for closing costs, something not present in a conventional loan.
*Affects pricing. With the No Closing Cost
Option, borrowers finance the closing costs instead of paying for them at
closing. Borrowers who pay closing costs at closing may qualify for a lower
interest rate. Some upfront fees (ex. credit report and appraisal) may apply
and may be credited at closing.
*Refinancing or taking out a home equity loan or line of credit may increase
the total number of monthly payments and the total amount paid when compared to
your current situation.
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