The Basics and Benefits of Refinancing
Are you thinking of taking out a VA loan to finance your property purchase? Well, two things! First, thank you very much for your service to this country. We appreciate all your contribution to ensuring America’s safety!
Second, we would like to tell you that you’re on the right path! In 2018, over 600,000 VA loans were issued out totaling to $161.3 billion.
The VA loan program is very beneficial to anyone who qualifies for VA loan. It allows you to enjoy a piece of the American Dream without sweating it too much. VA loans require no down-payment, mortgage insurance, or pre-payment penalties.
The loans also offer competitive interest rates compared to traditional bank financing. With all their benefits, VA loans provide substantial cost savings to borrowers. Plus, they’re not a one-time benefit as a borrower can borrow again once they repay the first debt.
Here is a detailed guide on VA loans and how they can help you:
What is a VA Loan?
A VA loan is another name for the Veterans Affairs mortgage. It is a loan offered by a private lender but partially guaranteed by the government through its Department of Veterans Affairs. There is no official limit to how much money you can borrow from these lenders, but there’s a limit to how much the VA will guarantee.
Eligible borrowers can only use the loan to buy or work on their primary residence. You can’t use it to pay for an investment property. Other things you can do with a VA home loan include:
Build a home from the ground up
Buy and renovate a home
Make home improvements such as installing energy-efficient systems or switching to renewable energy sources
Buy a manufactured home
Refinance an existing loan guaranteed by the VA program to get lower interest rates
Refinance an existing mortgage or other debt obtained by a lien of record on a veteran’s home
Who Qualifies for VA loan?
If you currently are or have been a member of the regular military, veterans, reservists or National Guard, you’re most likely eligible to apply for a VA loan. If you’re a spouse of a military member who died during service, you can also apply.
Military personnel on active duty typically qualify for VA loans after serving for only six months. Members of the National Guard and reservists have to wait for six years to make an application. But if they are called to active duty and serve for 181 days before the six years are over, they’re eligible to apply.
You also need to have a valid certificate of eligibility (COE) to be eligible for a VA-guaranteed loan. You can fill the COE form online or request your lender to obtain it for you. During application, you must prove that you’ve either:
Served for 181 days during peacetime
Served for 90 days during wartime
Served for six years in the National Guard or Reserves
Or you’re a surviving spouse of a service member who died in active duty
It’s crucial to note that having a COE doesn’t directly qualify you for a home loan. It only makes you eligible to apply for a VA-guaranteed mortgage. Anyone who qualifies for VA loan still needs to meet lender requirements like proof of sufficient income and your recent credit history needs to be good.
What Are VA Entitlements and Why Are they Necessary?
VA loans guarantee a part of your mortgage through entitlements. The term “entitlement” means the maximum collateral that the VA offers a lender for each eligible borrower. It is the money a VA program will pay to a lender in case you default.
Entitlements can either be basic or bonus/secondary/second-tier entitlements.
The basic entitlement is $36,000. In most states in the U.S., you can now receive a bonus entitlement of $85,087 up from $77,275 last year. That means most VA loan borrowers in the country now have a total entitlement of $121,087.
If you’re an eligible borrower and qualify for the full entitlement of $121,087, you don’t need a down payment to borrow a VA loan up to $484,348. But if you want to borrow more than the VA county loan limit (like with our Jumbo loans), a down payment has to come into play. Fortunately, you’ll need a much lower down payment in this case than with conventional loans.
Are There VA Loan Limits?
Note that there is no maximum amount that you can take out on a VA loan. There’s only an entitlement limit, after which you’ll need to put up a down payment. If you live in an expensive real estate market, VA offers higher entitlements so that you can borrow more and still evade making a down payment.
For example, if your county has a VA loan entitlement of $180,000, you can borrow up to $720,000 without putting up a down payment.
What Are VA Loan Funding Costs?
Although there’s no required down payment on VA loans, you need to pay an upfront funding fee. This fee helps compensate taxpayers’ costs. It varies from 1.25% to 3.35% of the loan amount and can be rolled into the loan. However, if you have a disability rating of 10% or more, your funding fee is waved.
As with other mortgages, closing costs apply. But, paying the funding fee and closing costs is usually significantly cheaper than a down payment.
How to Apply for a VA Loan
Once you have a valid certificate of eligibility, applying for a VA loan is straightforward. When you apply for a VA loan with us, we’ll get the COE for you. We help you avoid the hassle of looking for it yourself!
Plus, our loan application process is pretty simple. Just head over to our application pageand fill in the required details. Feel free to leave blank any information you’re unsure of. And if at any point you’d like some help, give us a call or schedule an appointment with our team!
Consider a VA Loan Today!
If you’re a person who qualifies for VA loan, don’t fail to utilize its many benefits when buying a home. You’ll not need a down payment, and the loan offers better interest rates than traditional loans. VA loans are a sure way of thanking you for your service!
Contact us today for more on VA loans and other lending options at your disposal!
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