US veterans and service members have sacrificed a great deal for the country. As a form of appreciation for their services, they often have incredible benefits and perks from the government, including a VA loan that helps them purchase a home or refinance an existing one.
Here, you’ll learn more about the types of VA loans. This article also sheds light on common VA loan myths and misconceptions and the facts about this program.
Understanding VA Loans
A VA loan is a home-financing option exclusively offered to eligible veterans. A VA loan is ideal because it provides up to 0.5% lower interest rates than conventional home loans and doesn’t require any down payment.
The US Department of Veterans Affairs partners with local private lenders to issue VA loans to qualified veterans and service members. Generally, the VA sets a specific percentage guarantee for a VA loan. This assures the lender that a portion of the loan will be paid if the borrower can’t make payments, minimizing lender risk and making it possible to offer favorable loan terms.
VA Loan Types
Depending on the lender, you have various types of VA loans to choose from, including:
1. VA Home Purchase Loan
Think of it as the regular mortgage loan, but exclusively for veterans and active servicemen and women. It allows qualified borrowers to buy a home and property with better terms than conventional mortgages.
2. VA Jumbo Loans
According to Security America Mortgage, a regular VA loan can be converted into a VA Jumbo loan if your home loan amount exceeds the VA loan limit in your county or state. This is suitable if you need more money to buy a specific house.
3. VA Renovation Loan
This VA loan helps qualified borrowers fund renovation and remodeling projects and other costs of home improvements. That said, only a few lenders offer this VA loan option.
4. VA Interest Rate Reduction Refinance Loan
Also known as VA streamline refinance loan, a VA IRRRL helps reduce your monthly mortgage payments by switching to a fixed-rate loan or lowering your interest rate.
5. VA Cash-Out Refinance
A VA cash-out refinance allows you to pay off a family debt, child education, or medical bills by taking up to 100% of your home’s equity. You can also use it toward home improvements to increase your home’s value and get more borrowing power than a traditional FHA refinance.
VA Loans Myths And Facts
Despite its wonderful benefits, most veterans and service members don’t even utilize this program due to the numerous misconceptions about this benefit. This section highlights the common myths and facts about VA loans.
1. A High Credit Score Is Required
This is often true for conventional loans. However, for VA loans, your credit score doesn’t matter much. The VA encourages partner lenders to provide VA loans to any qualified applicants without a minimum credit score required.
2. Only Selected Veterans Are Eligible
VA loans are available for all veterans, reservists, active-duty service members, surviving spouses, and others eligible for the benefits. In general, the VA outlines the eligibility criteria for VA loans. You can verify your eligibility with a Certificate of Eligibility (COE) from the VA, providing that you have the required military service history to get funding.
3. You Can Only Use It Once, And It Has An Expiration
A VA loan isn’t a one-time benefit and doesn’t expire either. If you earn a VA loan benefit, it’s yours for life. So, even if you served 50 years ago, if you’re qualified, you can still use it to buy a home today and use it again and again for your home-financing needs.
You can use it to buy your first home. If you’ve outgrown the house, you can use it again to upgrade to a bigger home to support your growing family. You can use your benefit again if you have enough entitlement to back up another loan. Depending on the value of the property you buy, you may or may not need to restore loan entitlement to reuse this benefit.
4. It’s Free
A VA loan is many things, but it’s never free. While it doesn’t carry a mortgage insurance fee, it does have a VA funding fee to sustain this government program for future veterans. Depending on your service history and the loan type, the funding fee ranges from 0.5%–3.3%.
That said, not every borrower will need to pay this funding fee, and qualified veterans with service-connected disabilities may be exempt from this fee.
Exclusively reserved for veterans and service men and women of different branches of the US military who risked their lives and continue to serve this country, VA loans are a great perk that most borrowers wish they had access to.
Whether you’re a veteran, an active service member, or a spouse of one, we hope that this article has made it easier to understand this fantastic program to help you purchase or refinance a home.