Everyone needs somewhere to live, and few people can afford to buy a home outright. When applying for a home loan, people actively look to find the best deal. They want a low-interest rate and repayment amount, with favorable terms. Fortunately for some people, they have extra perks with their jobs and can get a better arrangement.
VA mortgages are one such deal, and that’s what this article is all about.
Who Are the Loans For?
VA home loans are only available for service members (including reserve and national guard members) and veterans. The required length of service will vary for different personnel. There are different timescales for peace and wartime also. Military spouses are also eligible for such loans, or where the spouse died in action or sustained service-connected disabilities. Any would-be borrower may be assisted in either buying, building, restoring, keeping, or modifying a property. Loans will still be granted by a private company such as a private bank, mortgage company, or credit union. The difference is that the Department of Veteran Affairs (VA) will back part of the money. If the loan enters foreclosure, the guaranteed sum will enable the lender to recoup some of its financial losses. Let’s now look at the two types of loan:
90% of such loans do not require a downpayment when the house purchase is made. Private Mortgage Insurance (PMI) will also not be needed. Under this umbrella comes the Cash-Out Refinance Loan. This involves looking at the equity on the property and releasing it so the borrower can pay outstanding bills, school fees, or perform house improvement work. The Native American Direct Loan (NADL) program helps people buy, construct, modify, or refinance, but this relates solely to properties on native American trust land. The mortgage will only be advanced if the tribal organization is part of the VA loan program.
Interest Rate Reduction Refinance Loans
IRRRL are also known as Streamline Refinance Loans or VA to VA Loans. This is where someone with an existing VA loan seeks to get a better interest rate and lower monthly repayments. A fresh COE (Certificate Of Eligibility) is not required when applying as the one supplied for the original loan will be sufficient.
Help and Guidance
Seeking a mortgage lender is a bit like looking for a good builder. One can ask friends and colleagues for recommendations, or access the internet. There are lots of helpful comparisons and review sites people can view. They also supply valuable guidance and information. Jake Taylor with JakeTaylor.com says that a benefit of a VA loan is you can reuse to program as often as you like. He also maintains that ethical advice is as important as information on financial matters.
We’ve already mentioned that the VA guarantees part of the loan once it has been granted. This means there is less risk for the lender. As with all loans, the lower the risk, the lower the interest rate. VA rules ensure exit costs are limited, and prepaid mortgages do not incur penalties. Better deals are therefore given, and people may obtain a mortgage when they would otherwise have failed. Borrowers may also gain up to 100% finance on the loan. Construction loans help people if they decide to make their own homes. The VA is actively involved in the process, inspecting properties, and ensuring the builders are co-operative throughout.
People who apply for a VA loan will have to obtain a Certificate of Eligibility (unless it’s a refinance loan) as proof for the lender. The lender is best placed to request it on the borrower’s behalf. This is because they have direct access to an online portal to obtain it. Lenders will be unsuitable if they are not part of the VA scheme, however.
The home in question will need to be occupied by the military person or spouse, and/or dependents. If the person already owns a home and wants a mortgage for a second buy or investment, it will not be granted.
To check for eligibility, two years’ residence history and employment history will have to be produced. Potential lenders will also insist on looking at the person’s income, and two years’ worth of tax returns. They will want to see how much money and savings, the person holds, be it in current or investment accounts.
Credit histories come under scrutiny, and several major search engines are used for this. A person’s credit score will have implications on how much they will have to repay every month, as well as the interest rate offered. Usually, credit scores need to be more than 620 to be acceptable.
In some cases, people who have been adjudged bankrupt will not be able to secure a VA mortgage until two years have passed. Asset histories will be researched by the would-be lender. The loan application may be rejected if the total of the loan and monthly bills for the person exceeds 41% of their monthly payments. There can be a co-signatory to the mortgage deed if this party qualifies for the VA loan in the same way as the first person. The two individuals would then become joint borrowers.
The Final Steps
The bank or mortgage lender will review the entire application and send it to their underwriting department. If everything goes through satisfactorily, an offer will be made. Important documentation will be produced, outlining the terms, interest rates, and repayment amounts. People choose real estate agents after receiving personal recommendations or making their research. Not everyone uses one, however. Having said that, VA loans are slightly more complex than standard mortgages. An agent’s experience can be an added protection during the process. Any lack of expertise in the area of VA loans could create problems or slow things up, however. It’s also important to check the fees, commission, and obligations when choosing an agent.
Once the perfect home has been found, it’s important to have it fully appraised and inspected. If all goes well, a purchase agreement will eventually be signed, and closure reached. There should be many happy years spent at the property, enjoying the financial benefits provided by the VA loan.