What is a VA loan?

By RealtyCrunch IncApril, 21st 2020
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What is a VA loan?


A Veterans Affairs loan is a mortgage requiring $0 down payment issued by private lenders and partially backed or guaranteed by the Department of Veterans Affairs.

Buyers who qualify for the loan can use it to purchase a property as their primary residence or refinance an existing mortgage.

How a VA loan works

A VA loan is a bit unconventional in comparison to traditional loans. This is because the VA doesn’t make or originate loans, but backs a portion of each loan against default.

The stamp of approval from the VA is what gives private lenders the confidence to extend the $0 down payment financing and advantageous rates and terms to veterans.

Typical VA loan process:

  1. Get Prequalified
  2. Get Pre Approved
  3. Put in an Offer
  4. Go Through the VA Appraisal and Underwriting
  5. Closing

10 Things Most Borrowers Don’t Know About VA Loans:

1. Reusable: Buyers can use the full VA entitlement over and over again as long as you pay off the loan each time.

2. Qualify for certain types of homes: The loan is mainly designed for properties that are “move-in ready” conditions like single-family homes, condos, modular housing, some multi-unit properties, etc.

3. Primary residences only:  VA loans don’t quality for buying an investment property or vacation home.

4. Not issued by the VA: The VA just provides a guaranty on each qualified mortgage loan.

5. Guaranteed by the government: to support veterans, the government backs the loans.

6. Available despite foreclosure or bankruptcy: Service members who have a history of bankruptcy or foreclosure can still qualify for a VA loan.

7. No mortgage insurance: By the VA's guaranty on the loan, it eliminates the need for any mortgage insurance which helps borrows save more money each month.

8. Mandatory fee:  There’s a VA funding fee which helps keep the program going and is required on both purchases and refinanced loans. The typical fee on a first time VA loan is  2.3% of the amount borrowed, but increases to 3.6% for those who already used the program in the past.

9. Limits on co-borrowers: Anytime a buyer is looking for a co-borrower who isn’t your spouse or another veteran, the VA loan will usually require a down payment.

10. No prepayment penalty: There’s no fee associated with making extra payments to your loan to reduce the amount of time to pay it back.