When preparing to buy or refinance a home, deciding whether a VA home loans makes sense for your needs often requires some research. This popular loan program through the U.S. Department of Veterans Affairs provides significant benefits but also has some important nuances to understand. Here are answers to five of the most common questions prospective borrowers have about VA loans.
What Types of VA Home Loans Are Available?
There are two main categories of VA home loans - the VA Regular home loan and the VA Interest Rate Reduction Refinance Loan (IRRRL).
VA Regular Loan: This is the most well-known VA loan option and can be used to purchase a primary residence. It requires no down payment and allows financing of recurring closing costs and funding fees. The borrower is responsible for a one-time VA funding fee that ranges from 2.3-3.3% of the loan amount depending on down payment size and first-time use. This loan type has generous debt-to-income requirements and no mortgage insurance premium.
VA IRRRL: As the name suggests, an IRRRL is solely intended to refinance an existing VA loan. It aims to lower your interest rate without requiring a full underwriting of your finances and property. If you qualify, this streamlined option offers minimal closing costs and no appraisal, income verification, or credit checks. The goal is interest savings over the life of the loan.
Those are the primary choices - but within those categories, there are also options for short-term construction loans or Home Equity Conversion Mortgages (reverse mortgages) for eligible veterans.
Is a VA Home Loan a Good Option?
Generally speaking, a VA home loan provides significant advantages that make it a worthwhile option for many eligible veterans and active duty service members:
- No down payment is required on a VA Regular loan, allowing 100% financing on competitive terms.
- Debt-to-income ratios are more lenient than conventional loans, opening doors for those with higher DTI.
- There is no mortgage insurance, saving borrowers thousands in costs over the life of their loan.
- Funding fees can be included in the loan amount rather than paid up front, easing cash-to-close burdens.
- Appraisals may account for VA funding grant receipts on purchases of previously uninhabited properties.
However, it's not the optimal choice 100% of the time. VA loan terms can't necessarily match the lowest rates on the market. And some homeowners prefer the equity gains from a higher down payment. Overall, VA loans shine for those who need financing assistance and can maximize their full entitlement eligibility.
If Previously Used a VA Loan, Can I Use it Again?
Yes, veterans are eligible to utilize their VA home loan benefit for subsequent home purchases after selling their prior VA-financed property. Here are some important points regarding entitlement use:
There's no time limit for VA eligibility assuming no changes to discharge status or other qualifications.
So while eligibility does not fully reset each time, most veterans can obtain multiple VA home loans through ownership changes or market fluctuations. Just be cognizant of how much entitlement may be left from prior use when structuring offers.
Are VA Loans Restrictive With Home Selection?
Surprisingly to many, VA loans offer more flexibility with property eligibility than most programs. As long as the home meets basic real estate standards, it can likely be financed. Some noteworthy examples:
So while traditional single-family residences are common choices, don't be afraid to ask about more unusual options that may suit your lifestyle when using a VA loan. Eligibility oversight is more lenient.
How Long Does it Take to Get Approved?
VA loans generally close much faster than other programs, often within 30 days or less. Here are some factors influencing timing:
- If a property is already identified, a pre-approval can be quick, often within a couple of weeks.
- Complete applications and documentation to accelerate the process. Brokers can be invaluable support here.
- Renovation loans and properties requiring historic property approval or environmental assessment take extra processing.
- Occasionally, a lender backlog or unexpected issues delay closing. However, VA loans rank as one of the fastest options available.
These common questions offer a helpful overview of the key components that distinguish VA loans from other programs. Eligible veterans would be wise to evaluate how this uniquely advantageous financing benefits may positively impact their homeownership goals compared to alternatives. With guidance from an approved lender, the VA home loan application experience can be a relatively streamlined one.