VA Loans

Veterans and other qualified military personnel are eligible to obtain VA loans. These loans may only be made by lenders who have been approved by the US Department of Veteran Affairs. VA’s role is to provide a guaranty on the loan that protects the lender against loss if the payments are not made. Because the guaranty is provided by the federal government, lenders are willing to offer VA loans with very favorable terms.

A "VA Funding Fee" is required on most VA loans. The Funding Fee is required by law and is paid to the VA. It is intended to enable the veteran who obtains a VA home loan to contribute toward the cost of this benefit, and thereby reduce the cost to taxpayers. The Funding Fee may be included in the loan amount.

Key Features

VA loans have numerous features that, when combined together, result in a very advantageous loan. These features include the following:

ü For veterans with full entitlement, no down payment is required for loan amounts up to $359,650.

ü Interest rates that are frequently lower than loans with similar features.

ü No monthly mortgage insurance premium to pay.

ü Fixed interest rate, fixed payments

ü Adjustable rate loan program with very consumer friendly features

ü Terms of 15 years and 30 years

ü Qualification standards that are somewhat easier than most Conventional mortgage loans

ü Right to prepay the loan without penalty

ü An assumable mortgage, subject to VA approval of the assumptor's credit.

VA Loans Vs. Other Types of Loans

In terms of interest rate and Closing Costs, in most cases a VA loan is better than both Conventional and FHA loans. Generally speaking, the only situation when a Conventional loan would have better price than a VA loan is if the borrower is making a down payment of at least 20%.

The only other situations when a Conventional loan should be considered vs. a VA loan is if the loan amount is greater than $240,000, or if the borrower is interested in an adjustable rate mortgage

The only situation when an FHA loan should be considered vs. a VA loan is if the borrower is interested in an adjustable rate mortgage.

Who Is Eligible for a VA Loan?

The following individuals are eligible for a VA Loan:

Veterans with active duty service, which was not dishonorable, during World War II and later periods, are eligible for VA loan benefits. World War II (September 16, 1940 to July 25, 1947), Korean conflict (June 27, 1950 to January 31, 1955), and Vietnam era (August 5, 1964 to May 7, 1975) veterans must have at least 90 days' service.
Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days' active service. Veterans of enlisted service that began after September 7, 1980, or officers with service beginning after October 16, 1981, must in most cases have served at least 2 years.
Persian Gulf Conflict. Basically, reservists and National Guard members who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably are eligible.
Members of the Selected Reserve, including National Guard, who are not otherwise eligible and who have completed 6 years of service and have been honorably discharged or have completed 6 years of service and are still serving may be eligible. The expanded eligibility for Reserves and National Guard individuals will expire October 28, 1999

What Can A VA Loan Be Used For?

A VA loan can be used for the following purposes:

To buy a home, including townhouse or condominium unit in a VA-approved project.
To simultaneously purchase and improve a home.
To refinance an existing home loan up to 90 percent of the VA-established reasonable value, or to refinance an existing VA loan to reduce the interest rate.

Funding Fee

The amount of the Funding Fee will vary depending upon the down payment and veteran classification, as follows:

The basic Funding Fee of 2.0 percent of the loan amount. A down payment of 5 percent or more will reduce the fee to 1.5 percent and a 10 percent down payment will reduce it to 1.25 percent.

A Funding Fee of 2.75 percent must be paid by all eligible Reserve/National Guard individuals. A down payment of 5 percent or more will reduce the fee to 2.25 percent and a 10 percent down payment will reduce it to 2.0 percent.

The Funding Fee for loans to refinance an existing VA home loan with a new VA home loan to lower the existing interest rate is 0.5 percent.

Veterans who are using entitlement for a second or subsequent time who do not make a down payment of at least 5 percent are charged a Funding Fee of 3 percent.

The Funding Fee does not have to be paid by veterans receiving VA compensation for service-connected disabilities, or who but for the receipt of retirement pay would be entitled to receive compensation for service-connected disabilities, or surviving spouses of veterans who died in service or from a service-connected disability.

Want to apply for a VA loan? Click here to find out how.