What is a VA loan?
Veterans, active military personnel, and military spouses who qualify may be able to take advantage of these loans, which require no down payment.
A VA loan is a mortgage loan that’s backed by the Department of Veterans Affairs (VA) for those who have served or are presently serving in the U.S. military. While the VA does not lend money for VA loans, it insures loans made by private lenders (banks, savings and loans, or mortgage companies) to veterans, active military personnel, and military spouses who qualify.
There are three types of VA loans: purchase loans, interest rate reduction refinance loans (or IRRRL, also referred to as a VA streamline refinance loan), and cash-out refinance loans. There are many benefits to a VA loan, but one of the biggest benefits is that no down payment is generally needed to purchase a home. This can make homeownership a reality for active military or veterans who might otherwise not be able to afford it.
Who is eligible for VA loans?
VA loans are designed for military personnel, veterans, and military families. The list of those who are eligible for this home-buying military benefit includes:
- Veterans
- Active-duty personnel
- Reserve members
- National Guard members
- Some surviving spouses
You must also have suitable credit, sufficient income, and a valid Certificate of Eligibility (COE). And you must use the home for your own personal occupancy. Still unsure if you’re eligible?
Check the Department of Veterans Affairs website for a detailed list of eligibility requirements for military service members, veterans, and military spouses.
What are the benefits?
The VA loan program offers some of the most attractive and flexible loan benefits available, and they are exclusively for military personnel, veterans and their families. Perhaps the two biggest benefits that make these loan more affordable than a typical loan are that the borrower typically does not need to make a down payment, and there is no private mortgage insurance (PMI) requirement.
Here’s a look at the complete list of benefits, as taken directly from the Veterans Affairs site:
- No down payment required (unless required by the lender or the purchase price is more than the VA loan limits)
- No private mortgage insurance premiums are required
- Negotiable and competitive interest rate
- Ability to finance the VA funding fee (plus reduced funding fees with a down payment of at least 5 percent and exemption for veterans receiving VA compensation)
- VA rules limit the amount you can be charged for closing costs
- Closing costs are comparable with other financing types (and may be lower)
- Closing costs may be paid by the seller
- VA loans are assumable
- Right to prepay your mortgage without penalty
- For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
- VA assistance to veteran borrowers in default due to temporary financial difficulty.
Remember that each lender sets their own minimum standards, which may be more stringent than minimum VA guidelines. Your lender can discuss your unique circumstances with you.
How much can veterans and military personnel borrow with a VA loan?
According to the VA there is “no maximum that an eligible veteran may borrow using a VA-guaranteed loan.” However, there are county limits that must be used to calculate the VA’s maximum guaranty amount for a particular county. In other words, there’s no limit to how much you can spend on your new home with a VA loan, but the VA has limits on how much liability it will assume, which can affect the amount of money your lender will let you borrow.
Generally, eligible veterans or military personnel can get loans up to $484,350 with no money down. But that number can be much higher in certain counties that have a higher cost of living. Review the list of county limits for VA loans to see the limit for your county.