The Complete Guide to VA Loans

Friday, January 9, 2015, PM | Leave Comment

VA loans were established in 1944 to help returning service members purchase homes. These mortgages are guaranteed by the government and issued by approved lenders.

Borrowers who qualify for VA loans have definite advantages over those who use traditional methods to finance their homes.

  • VA Loans Compared with Conventional Loans

    • Down Payment
      VA loans are available for $0 down payment. Banks usually require as much as 20 percent down for conventional mortgages. Obviously with 100 percent financed, the VA loan will generally have higher monthly payments.
    • No Private Mortgage Insurance Required
      Since VA loans are government guaranteed, banks do not require private mortgage insurance. Private mortgage insurance increases the monthly payment of conventional loans.
    • Competitive Interest Rates
    • No Prepayment Penalty
      Since the VA allows prepayment without penalty, borrowers are free to purchase another home or refinance their current homes.

  • Qualifying for a VA Loan

    Applicants must meet at least one of the requirements in the following:

    • Service Requirements

      1. 90 consecutive days of service during war time

      2. 181 consecutive days of service during peacetime(certain restrictions may apply, more here)

      3. 6 years of service in the Reserves or National Guard (certain restrictions may apply)

      4. Active Duty Service Personnel who have served for 90 consecutive days

      5. Certain US citizens who served during WWII;

      6. Unmarried surviving spouses (certain restrictions apply) and

      7. Members in certain other organizations may also be eligible.

    • Certificate of Eligibility
      A certificate of eligibility assures the lender that the borrower is eligible for a loan. You will generally need a copy of your DD 214, Certificate of Release or Discharge to obtain the certificate. The lender can assist in getting the COE after the application for the loan is made. It is not prerequisite to the application.

    • Employment Eligibility
      Active duty applicants have little difficulty meeting the employment requirements. Other loan applicants should have at least 2 years of steady employment with the same employer. However, the VA will allow the applicant to bridge employment between employers.

    • Credit History
      Most lenders prefer a credit score of 620, but other factors are more significant in determining the borrower’s qualifications. The applicant’s assets, debt to income ratio and ability to pay can override a low credit score.

      For additional information see Eligibility for VA Loans Guidelines

  • First Time Home Buyer

    First-time home buyers are fortunate when financing with VA loans. Since the loans are guaranteed by the government veterans should be careful to make sure they are searching for a home they can afford, Veterans should do their own research even if they are working with a real estate agent.

    Buyers should educate themselves and know the property being purchased and the methods of financing that are available in the marketplace.

    • Learning about Property
      When selecting your first home, you should consider the possibility of selling it at a later date. For that reason, you should determine the direction the city is growing, services offered in that area, built-in appliances and construction materials. Imagine what the neighborhood will be like in the future.

      Will you need to make extensive repairs or change energy sources before selling the property? Is the home well–constructed? Check the home thoroughly from top to bottom for flaws in construction.

      Check the insulation to be certain it is adequate. If you are purchasing an older home, you should ask the previous owner about heating and cooling bills.

    • Learning about Financing
      Lenders have various options for financing home loans. You may have options of fixed-rate and variable rate-loans. Researching the various options available can help you select the one that works best for your particular needs.

      Additional information may be found at Lending Tree’s VA Loans page.

  • Refinancing VA Loans

    Since VA loans can be refinanced up to 100 percent of the home’s value, veterans can lower their monthly payments as interest rates fall. You can use a refinance calculator in order to find out your monthly payments.

Conclusion

By using this guide, you should know if you are eligible for a VA loan, In addition, you should be prepared to find properties and lenders to meet your needs. Remember to continue researching and staying abreast of interest rates and changes in laws and rules.

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