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If you’re looking to buy or refinance a home, the U.S. Government offers a number of mortgage products that are less restrictive and more affordable than conventional loans. Among them is the VA loan, backed by the U.S. Department of Veterans Affairs. Available to active and former American military service members, VA loans feature major benefits such as 0% down payment options and no requirement for private mortgage insurance (PMI).
Make sure to ask a mortgage expert if a VA home loan is right for you and your life situation. In the meantime, consider the details below for a clearer picture of the advantages and limitations involved:
Only veterans with honorable discharges are eligible for VA home loans.
Service of 90 days or more, waived if applicant is discharged due to service-related disability.
Service of 181 days or more, waived if applicant is discharged due to service-related disability.
Reservist or National Guard
Service of at least 6 years.
Spouses of deceased service members are eligible for VA loan benefits, provided they have not remarried and that the deceased died in service or from a service-related disability, was missing in action or a prisoner of war for at least 90 days or was rated totally disabled and was eligible for disability compensation at the time of death. Children of deceased veterans are not eligible for VA mortgage loan benefits.
As with conventional loans, VA-approved lenders require certain credit and income minimums to justify the financial risk. Some use a 620 credit score as the rough benchmark, though each individual case and lender will vary.
VA loans don’t require a down payment for loan amounts at or under the local conforming loan limit. For most of the country, this amount is $424,100. The VA allows you to purchase jumbo loans, but requires that you supply 25% of the difference between the loan amount and the loan limit. This means there are no 0% down payment options for jumbo VA loans.
Borrowers can refinance their homes with a VA streamline or VA cash-out loan. The streamline version, also referred to as an interest rate reduction refinance loan (IRRRL), lowers the mortgage rate of an already existing VA loan and will usually be for less than the current principal and interest, and so does not require a credit check or appraisal. The cash-out option involves a credit check and appraisal, since the home’s value represents the maximum loan amount and the new loan will be larger than the existing loan. The streamline refinance carries a .5% funding fee while that of the cash out refinance ranges from 2.15% – 3.3%.
The VA allows for increases to purchase loans for the purpose of making renovations. The VA’s Energy Efficiency Mortgage program, for instance, lets borrowers add up to $6,000 to their home loan amount to install solar heating, insulation and storm windows, among other features.
VA Funding Fee
Though (PMI) is not a requirement of VA home loans, borrowers are charged a funding fee. The fee is determined by the type of mortgage and down payment amount, among other things. The funding fee is waived for veterans with a service-related disability.
A VA home purchase loan can only be used for a primary residence.
To learn more about VA home loan benefits, contact a knowledgeable mortgage expert today!