What is a VA Mortgage Loan
What is VA Mortgage Loan?
A VA mortgage home loan is a mortgage loan, that offers veterans who are or who have previously served in the United States Military and their spouses the ability to purchase or refinance their home with no mortgage insurance, and at lower interest rates and relaxed underwriting requirements.
What are the benefits of a VA Mortgage Loan?
VA mortgage loans offer unmatched benefits to the veteran compared to traditional mortgage loan programs. There are three main benefits for VA Mortgage Home Loans, lower interest rates, relaxed underwriting guidelines, and no monthly mortgage insurance.
Typically on a mortgage loan amount that exceeds 80% the value of the property being financed, lenders will require a separate mortgage insurance policy that protects the lender in the event of an adverse event that creates losses to the mortgage lender. This type of policy is known as mortgage insurance.
However, on VA Mortgage Loans, the United States Government provides this insurance to the mortgage lender and there are no monthly mortgage insurance charges that a veteran will have to pay.
In addition, because these mortgage loans are guaranteed by the Federal Government, the mortgage lenders can offer even lower interest rates, and relaxed underwriting requirements. Typically, VA interest rates are about .50% lower than conventional mortgage interest rates.
With VA loans, you can borrower up to 100% the value of the property for both purchasing a home or refinancing a home you already have.
Summary of VA Benefits
In summary, the benefits of a VA mortgage loan are 0% down payment on a purchase loan, with no monthly mortgage insurance, plus you get a lower than average interest rate compared to most all other loan programs.
You can learn more about the process of getting a mortgage or you can simply apply and our automation will return immediate eligible loan results for you.
In regards to refinancing your mortgage, using a VA loan refinance, will allow you to borrow up to 100% the value of your home without mortgage insurance and at a lower interest rate then normal programs. Now lets take a look at the types of VA mortgage home loans that are available to you veterans and their spouses.
What are the types of VA Mortgage Loans
There are 3 types of VA mortgage home loans available. The Veterans Administration provides 2 types of mortgage refinance VA 100% Refinance and the VA Interest Rate Reduction loan programs, which we will explain below. For purchasing a home, the VA provides a 100% purchase home loan program.
VA 100% Refinance
The VA 100% Refinance, also known as the VA 100% cash out refinance allows Veterans to borrow up to 100% the value of the property. In general, you only need a credit score of 580 to qualify along with normal income documents.
While the Veterans Administration calls this program a cash out refinance, this program is also used for homeowner's who want to only refinance the terms of their mortgage loan without accessing the equity in their home.
Purpose of VA 100% Refinance
- Refinance for lower interest rates and/or shorter terms
- Debt Consolidation, use the equity in home to pay off all debts
- Cash Out, use the equity in home for a lump sum cash amount
- Home Improvements, repairs, additions, upgrades
Qualifications for VA 100% Refinance
- Loan amount can not exceed value of home
- Gross monthly income must be 2 x total amount of bills
- 2 years of employment or proof of disability, retirement, social security
- Real Estate Appraisal with no major maintenance issues
- Minimum credit score 580
- No Chapter 7 bankruptcy in last 2 years
VA IRRL
The VA IRRL stands for interest rate reduction loan. This VA loan program applies to veterans that have an existing VA mortgage home loan and would like to simply qualify to lower their monthly mortgage payment and/or shorten the term of their existing mortgage. This is an effective choice if the interest rate you currently have is higher than interest rates available today.
In general, closing cost can not exceed 36 months of payment savings as mandated by the Veteran Administration underwriting guidelines. Using a VA IRRL to lower your interest rate can help you avoid the normal VA Funding Fee for those that are not at least 10% or more disabled. The VA Funding fee is only .50% times the loan amount.
With a VA IRRL, underwriting is limited to payment history and credit score. There are no income documents or appraisals required for final loan approval.
Purpose of VA IRRL
- Lower monthly mortgage payments
- Pay home off faster with shorter term
- No cash out refinance
- No income docs or appraisal requirements
- Reduced VA Funding Fee to .50%
Qualifications of a VA IRRL
- Existing mortgage must be a VA loan
- No 30 days late on mortgage in last 12 months
- New must be lower than current loan payment
- Closing cost can not exceed 36 months payment savings
- No minimum credit score required
- No Chapter 7 Bankruptcy in last 2 years
VA Purchase Loan
This VA purchase loan will allow Veterans to purchase a home under relaxed underwriting guidelines; moreover, VA home buyers will not be required to have any down payment requirements that most all other loan programs require.
Using the VA purchase loan program, Veterans will receive lower interest rates and not have any monthly mortgage insurance. This is the best loan program on the market.
Purpose of VA Purchase Loan
- 0% Down payment requirements
- Minimum credit score of 580
- No monthly mortgage insurance
- Lower interest rates
- Relaxed underwriting guidelines
Qualifications of VA Purchase Loan
- Loan amount can not exceed value of home
- Gross monthly income must be 2 x total amount of bills
- 2 years of employment or proof of disability, retirement, social security
- Real Estate Appraisal with no major maintenance issues
- Minimum credit score 580
- No Chapter 7 bankruptcy in last 2 years
What is the VA Funding Fee?
Because the Veterans Administration offers these "NO Monthly Mortgage Insurance" loans at very low interest rates to Veterans, they will collect a small VA Funding Fee upfront and it is financed into the mortgage loan. This VA funding fee is used as a pool of funds to help cover any losses that may occur as a result of issuing relaxed credit and underwriting loans with up to 100% financing.
Typically, given the ultra low interest rates of VA mortgage loans, Veterans still capture maximum savings using the VA loan programs when paying this funding fee. We will review when you would not want to use VA even when qualified to do so below.
VA Funding Fees for Purchase
|
Down Payment |
||
|---|---|---|
| First use | Less than 5% | 2.3% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% | |
| After first use | Less than 5% | 3.6% |
| 5% or more | 1.65% | |
| 10% or more | 1.4% |
VA Funding Fees for Refinance
| First use | After first use |
|---|---|
| 2.3% | 3.6% |
VA Funding Fee for VA IRRL
.50%
NOTE: Funding fees are multiplied against the loan amount. Funding fees are financed into the loan, meaning you do not have to bring money to closing.
VA versus Conventional and FHA
While the VA Loan offers exceptional lending terms, there are times where it would be more beneficial to use conventional mortgage loans and maybe even FHA mortgage loans. In general Veteran is at least 10% disabled, the VA funding fee is waived. Therefore, they will always want to use VA Loans for to maximize their savings.
However, if the Veteran is not disabled then the please consider the following pointers to consider not to use VA loans.
- If loan amount is less than 80% value of home, and credit score is greater than 680
- If loan is not for cash out and loan amount is less than 80% home value
In summary, the election to use VA versus conventional loans is mathematical. We recommend using a our loan engine Apply Now which will identify on cases by cases the mathematical winner for your scenario.
How do I get a VA Mortgage Loan?
Getting a VA mortgage loan is a very easy process. To short cut the process you can answer a few questions on our automated loan application and it will return available loan options with lowest rate guarantee or you can read the guide How to get a mortgage and also read VA eligible properties and income qualifications.
8 Steps to getting a VA Mortgage Loan
- Have basic information: credit score, monthly income, monthly bills total
- Submit an automated loan search and pre approval on our APPLY NOW
- Review eligible loan options, noting the lowest APR loans at top
- Upload required documents shown on screen
- Call or schedule call with loan originator or customer service
- Maintain contact with customer service
- Review final figures in preparation of closing
- Attend closing
If you are considering getting a VA mortgage home loan, it is important to seek additional help and or guidance to understand when you should and should not use the VA mortgage loan. So often in my career I have seen many homeowners poorly advised on using or not using the VA and this has cost them $1000's in unnecessary charges.
We are always happy to help with no obligations or pressure. Just thoughtful guidance and assistance.
