© Nevada Tumbleweed (Flickr) US Army Firefighting Team
© Nevada Tumbleweed (Flickr)
What is a VA loan?
Definition
A VA loan is probably the best lending option for military service people because the Veteran’s Association agrees to repay most of the loans it guarantees, if the borrower defaults on the loan repayments.
Protects the lender
Lenders who approve VA loans love the loan repayment guarantee as it provides the lender with financial protection which most other loans do not provide.
Who is qualified for VA loans?
Not many military veterans take advantage of the mortgage loan benefits that they receive from the Veteran’s Association. Many military veterans either believe that they are not eligible, or they do not know where to begin to start receiving the VA home loan benefits.
The veterans or active military members who are eligible for the VA loan guaranty program are those individuals who have been181 days on active duty, or who have served three months during the war time.
Moreover, individuals who have spent at least six years in the National Guard or Reserves, or spouses of military members who have been killed in the line of duty, are eligible for the VA home loan program.
Benefits of a VA loan
No down payments
One of the biggest benefits for being approved for a VA home loan is that the borrower can purchase a home without having a down payment. Nowadays, it is not likely that there are mortgage programs that offer 100% financing, and that is why many military members take advantage of the VA home loan program.
Different from conventional loans
Another benefit of going through with a VA home loan is that their standards and underwriting guidelines are less strict than conventional loans. About 80% of military members who apply for a VA loan would not have been qualified for a conventional loan. Unlike conventional loans which require a 20% down payment to avoid private mortgage insurance, VA loans do not have a private mortgage insurance.
Interest rates
Other items which make a VA loan different from a conventional loan is that they have lower interest rates, no prepayment penalty for paying the loan off earlier. Moreover, there is a high debt-to-income ratio and the seller can pay up to 6% of the closing cost.
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