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What Is a VA Loan?
If you're a veteran, active service member, or surviving spouse, you might qualify for a VA loan, which is a mortgage available through the U.S. Department of Veterans Affairs program. These loans let you buy a home with little to no down payment, skip private mortgage insurance, and secure a competitive interest rate. Remember, the VA backs these loans but doesn't issue them—private lenders handle that part.
How a VA Loan Works
VA loans are designed to make homeownership easier for those who've served. You can get up to 100% financing on a home's value, whether you're buying, building, improving, repairing, or refinancing. The VA sets the standards and guarantees the loan, but you apply through private lenders like banks or mortgage companies. To start, you'll need a certificate of eligibility from the VA, which requires service-related documents depending on your status. These loans are generally easier to qualify for than conventional ones, and they're securitized through Ginnie Mae for added security against default.
VA Loan Terms
The terms for VA loans stand out for their generosity compared to other mortgages. You won't face a mandatory down payment unless the lender requires it or the home's price exceeds its value, and there's no need for private mortgage insurance. Closing costs are capped and can even be covered by the seller, with no prepayment penalties if you pay off early. If you're struggling, the VA offers assistance to avoid default. Credit score requirements vary by lender, but the VA just needs you to be a satisfactory risk. You can use VA loans multiple times, though a funding fee applies—ranging from 1.4% to 3.6%—and it increases after your first loan if your down payment is under 5%.
Types of VA Loans
The VA provides several loan types to fit different needs. For buying a home, VA home purchase loans offer competitive rates without down payments or mortgage insurance. If you want to tap into your home's equity, cash-out refinance loans let you borrow against it for things like debt payoff, education, or improvements, replacing your current mortgage with a larger one. Interest rate reduction refinance loans, or IRRRLs, help you lower your rate on an existing VA loan or switch from an adjustable-rate to a fixed-rate mortgage through a streamlined process. For Native American veterans, the Native American Direct Loan program finances homes on federal trust land with reduced interest rates. Additionally, the VA has adapted housing grants for veterans with permanent service-connected disabilities to build, buy, or modify accessible homes.
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