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.
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.
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.