For Veterans, Servicemembers, and eligible spouses looking for a $0-down mortgage loan, VA loans are a popular option.
Va Loan Basics
VA loans are partially guaranteed by the U.S. Veterans Administration. Therefore, mortgage lenders are able to offer better terms and easier qualification standards. Some of the lowest down payment standards in the lending industry are available as VA financing. The VA aims to help supply housing to veterans in rural areas where financing can be difficult to find. In some cases, the seller is eligible to pay for all borrower closing costs.
Qualification is subject to a valid Certificate of Eligibility, which includes minimum service requirements provided by the VA. Financing is limited to the purchase or refinance of the borrower’s owner-occupied primary residence. Benefit entitlement may be restored if the previous VA loan is sold and paid off in full.
Since the VA home loan program doesn’t require a down payment or private mortgage insurance, borrowers should be prepared to pay the VA funding fee. Although a one time payment, the funding fee may be financed into the overall amount and paid off throughout the life of the loan.
VA Loan Requirements
- Veterans and servicemembers have to meet the minimum active-duty service requirements.
- Veterans can still qualify if they were discharged with a service-connected disability.
- Spouses can qualify for a certificate of eligibility provided they meet one of these requirements:
- They haven’t remarried before 57 years old while the veteran died in service or from a service-connected disability, or if they married before December 16, 2003.
- The veteran is missing in action.
- The veteran is a prisoner of war.
Benefits of a VA Loan:
Minimum Down Payments Available:
Down payments on VA loans can be as low as $0-down.
Along with this, home buyers are not required to purchase private mortgage insurance. This is usually required for buyers that pay less than 20% for a down payment.
Although you should be aware of the funding fee, which is a one-time payment in lieu of private mortgage insurance, which is used for buyers that don’t provide a down payment.
Zero Down Payment Offered to Disabled Veterans:
If the homebuyer is a disabled veteran, they might not have to pay the funding fee. Below are a few requirements they have to meet:
- If the buyer is a service member with a proposed or memorandum rating, before the loan closing date, saying you’re eligible to get compensation because of a pre-discharge claim.
- If the buyer receives VA compensation for a service-connected disability.
- If the buyer is eligible to receive VA compensation for a service-connected disability but is instead receiving retirement or active-duty pay.
- If the buyer is a spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and they’re receiving Dependency and Indemnity Compensation (DIC).
- If the buyer is a service member on active duty who before or on loan closing date provides evidence of a purple heart.
No Private Mortgage Insurance Necessary:
Due to the low-down payments offered with VA loans, the funding fee is applied to every purchase and refinance loan. This maintains low costs for taxpayers. The fee is usually 2.3% of the loan amount, although it can range from 1-4%, and can be an upfront cost placed on the overall loan amount.
No Seller Closing Cost Limitations:
There is no cap lenders can place on sellers for closing costs. That means buyers can have sellers pay for:
- Origination fees
- Discount Points
- Credit Reports
- Inspection fees
- Title Insurance
Unlike other mortgage loans, VA loans prohibit lenders from charging closing costs such as:
- Attorney Services
- Settlement Charges
- Prepayment Penalties
- Mortgage broker commissions
Basic Allowance for Housing Eligible for Loan Payments:
Basic Allowance for housing is given to veterans stationed in areas where government housing is not available.
Military allowances can be used by veterans as income on a mortgage loan.
VA Funding Fee can be Financed into the Loan Amount for Reduced Up-front Costs:
As we’ve stated above, the funding fee is what is used to fund the loan. If veteran homebuyers don’t meet the requirements to wave the fee, there is an option to roll it into the total loan amount, which it can then be paid for over the life of the loan through monthly mortgage payments.
Benefits are Reusable:
The VA loan program doesn’t go away after one purchase. If veterans do it right, they can have multiple loans going on at the same time.
No Early Payoff Penalties:
Some mortgage loans penalize home buyers for paying it off early. This is to accumulate interest over the life of the loan. At most, mortgages only allow buyers to pay off 20% each year without the penalty.
The great thing about VA loan are the non-existent early payoff penalties. Not only that, but there is no exit fee. Other veteran home buyers can take on the responsibility of the loan.
More Mortgage Loan Info
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