Is a VA Home Loan Right for You?

If you’re a military service member or married to one, a VA loan could give you homebuying savings (and shortcuts) worth saluting. 

Military service members go above and beyond in service to our country. To show its gratitude, the federal government offers current and veteran service members (and their spouses) the opportunity to receive a VA loan to purchase or refinance a home. Sound like just the thing for you? Read on to see if a VA loan makes sense for your situation.  

What is a VA Loan?

Created via the GI Bill in 1944, a VA loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs (VA) and issued by a private lender, i.e. a bank, credit union or mortgage lender. The government will repay the lender if the borrower defaults on their payments, which reduces the risk for lenders and allows them to give VA loans their most notable features.

You can also use VA loans for several different purposes, including:

• A mortgage to purchase a home
• A cash-out refinance
• An interest-rate reduction refinance
• Rehab and renovation loans
• Native American Direct Loan
  

Who is Eligible for a VA Loan?

Wondering how to qualify for a VA Loan? You are likely eligible if you are one of the following:

• An active-duty military service member or veteran who meets length-of-service requirements
• The spouse of an active-duty military service member or veteran
• The surviving spouse of a service member who died while on active duty or from a service-connected disability and who has not remarried after a certain cutoff date
• The spouse of a POW or MIA service member
  

A few other requirements: You must also meet your lender’s credit and income standards. (Note: the VA does not have a minimum credit score.) The property you want to buy also must meet safety standards and building codes, and be your primary residence.

Benefits of VA Loans vs. Conventional or FHA Loans

VA mortgage loans are popular with eligible borrowers for many reasons. Here are some of the advantages of a VA loan vs. a conventional or FHA loan:

• You don’t need a down payment.
• You won’t pay mortgage insurance: Contrast this with conventional loans, which require mortgage insurance for down payments under 20%, and FHA loans, which require mortgage insurance no matter how much you put down.
• Lower interest rates: According to Ellie Mae, the average rate for a 30-year mortgage was lower for VA home loans throughout 2019.
• Reduced closing costs: The government limits fees (like the origination fee) and prohibits lenders from charging other closing costs that you would pay with a conventional loan.
• You can get more than one: Even after using a VA loan to purchase a home, it is possible to get another one down the road if you sell the house, repay the VA loan, or meet certain other conditions.
  

Drawbacks of VA loans

As great as these benefits are, VA loans come with some additional factors to consider:

• Funding fee: While you won’t need a down payment or mortgage insurance, under VA loan guidelines, borrowers pay an extra funding fee that covers the cost of foreclosing if you default. This fee ranges from 1.4 to 3.6% of the loan and can be paid upfront or folded into your mortgage payments.
• They can only be used on a primary residence: VA loans can’t be used for investment or vacation homes.
• Your property must be approved by a VA-approved appraiser: They will evaluate the home, estimate its value, and ensure it meets minimum VA home loan requirements.
  

Get Advice from an Independent Mortgage Broker

Military service members know how important teamwork is. If you’re eligible for a VA loan but unsure if it’s the best option for you, consult with an independent mortgage broker. They’ll help you weigh the benefits and can provide trusted insight on whether it’s in your best interest to go with a VA loan. Whichever way you decide, they’ll then shop your loan around a carefully chosen group of lenders to find the best monthly payment for your financial situation. Even better, as mortgage experts, they’ll guide you through every step of the loan and help get you into your home quicker.