Understanding the VA Loan
The VA Home Loan is a mortgage loan option offered exclusively to active military service members, veterans and surviving spouses. VA loans are financed through private lenders and guaranteed by the Department of Veterans Affairs.
With the Department of Veterans Affairs backing a portion of each loan, VA mortgage lenders are able to provide qualified borrowers with favorable terms, competitive VA Loan rates, no private mortgage insurance, and a bevy of other advantages – including the flagship benefit of $0 money down.
History of the VA Loan
The VA Home Loan Guaranty Program was established in 1944 to provide Veterans returning from war a better opportunity to establish credit and secure a financial future. As part of the Servicemen's Readjustment Act, commonly known as the G.I. Bill, VA Home Loan benefits allowed Veterans to purchase or refinance the home of their dreams with exceptional benefits.
Today, the VA Home Loan still plays a vital role for Veterans. With nearly 8 out of 10 VA Loan borrowers unable to qualify for conventional financing, the VA Loan Guaranty program continues to play a vital role in the economy, helping veterans, service members, and surviving spouses receive competitive financing with unmatched benefits.
Who is Eligible for a VA Loan?
As mentioned in the previous section, veterans, active service members, and surviving spouses may be eligible for the VA Home Loan.
You may be eligible for a VA Loan if any of these describe you:
- Active-duty Veterans with at least 90 consecutive days of service during major conflict
- Peacetime Veterans and active-duty personnel with at least 180 days of consecutive service
- National Guard or Reserve members who have more than six years of service – unless otherwise eligible
- Spouses of service members who died in the line of duty or as a result of a service-related disability
National Guard and selected Reserve members may also qualify. Check your eligibility with a qualified Home Loan Specialist if you have any questions.
How are VA Loan Rates Determined?
Interest rates on VA Loans are not established by the Department of Veterans Affairs, but by competitive forces in the open market. VA lenders set their own interest rates based upon internal guidelines and current market conditions.
However, with the VA Loan, lenders see reduced risk, even when a borrower's credit isn't perfect. Every VA Loan comes with a guarantee from the Department of Veterans Affairs for up to 25 percent of the loan amount. Because of that guarantee, lenders know that at least that amount will be covered in the unlikely case that a homeowner defaults, meaning the lender takes on less risk. This is why using a VA Loan to finance a home usually equates to getting a better interest rate compared to other programs.
How do I Qualify for a Low rate?
Rates are lower for shorter term loans than for longer terms. That means that a 15 year fixed VA Loan rate will be lower than a 30 year term. But that doesn’t mean the monthly payments will be lower for a 15 year loan even though the rate is lower.
In addition to the length of the loan, qualifying for a low rate mortgage is dependent upon your individual financial situation. The rate you receive may very well differ from the interest rate offered to a different borrower. This is due to a number of things, such as your credit, the VA Loan type and the current market conditions.
Here are some tips to getting a lower interest rate.
- Improve your credit. Start by checking your credit report and start paying down some of your debts. You may also check to make sure there aren't any fraudulent charges.
- Timing. Interest rates tend to fluctuate, but by watching the market carefully, you can lock in your loan at a great rate.
- VA approved lenders like to see prospective buyers will be able to make monthly payments in addition to other expenses. Good Savings reserves will allow lenders to offer a lower rate.
Why use a VA Loan?
For those who qualify, there is no better loan program on the market today for those who want to pay little to nothing down than a VA mortgage. There’s simply nothing that compares and is a reward for those who serve our country.
If you qualify, you can count on competitive interest rates without the burden of excessive down payments or private mortgage insurance. Every day, more and more military families are taking of this unique federal benefit to move their families into new homes with the greatest cost efficiency.
What Can I do with the VA Loan
You can use your VA Loan to purchase a house, condominium or townhouse, as long as the dwelling will be your primary residence. You can also build a home, make energy-efficient home improvements or refinance your mortgage under various parts of the VA Loan program. The loan cannot be used for vacation homes, certain commercial property or to purchase land
For more information on your VA Loan benefits, see these VA Loan frequently asked questions.
How Much can I Borrow?
The VA does not put a cap on how much money you can borrow. This is determined by the lender after a thorough look at your financial portfolio. Your lender wants to make sure you can afford the potential mortgage, and understands the costs of owning a new home.
Although there is no maximum from the VA on the amount you can borrow, there is a limit on the amount the VA will guarantee. This guarantee covers homes up to $417,000 in most counties, but can exceed $1 million in high-cost areas.
VA Loan Limits can become confusing in a hurry, so it is important for potential homebuyers to understand that these limits do not apply to or affect most VA homebuyers.