VA loans are a type of home loan available to eligible veterans, service members, and their spouses. They are backed by the U.S. Department of Veterans Affairs (VA) and offer many benefits, such as no down payment, no private mortgage insurance (PMI), and lower interest rates.
VA loans are a great option for eligible borrowers, but there are some things to keep in mind. Here is a guide to how VA loans work.
Essential Overview of How VA Loans Work
- Eligibility. To be eligible for a VA loan, you must be a veteran, active duty service member, or National Guard or Reserve member. You must also have a good credit history and sufficient income to make your monthly loan payments. If you are not sure if you are eligible, you can check the VA’s eligibility requirements.
- Application Process. The first step in the VA loan application process is to get a Certificate of Eligibility (COE). You can apply for a COE online, through your lender, or by mail. Once you have your COE, you can start shopping for a home. When you find a home you want to purchase, you will need to get a home appraisal and submit a loan application to your lender. Your lender will then send your loan application and supporting documentation to the VA for review. The VA will give its approval, and then your lender will issue a loan commitment. At this point, you will need to pay for a home inspection and provide the lender with proof of property insurance. Once the lender has received these items, they will issue a final loan approval and send you a Closing Disclosure form.
- Closing. The closing is the final step in the home-buying process. This is where the loan is finalized, and the home’s sale is completed. At the closing, you will sign all of the loan documents and pay any closing costs. The closing costs can include things like appraisal fees, loan origination fees, and title insurance. Once the closing is complete, you will be the owner of your new home! At closing, you will sign all of the loan documents and pay any closing costs and down payment. Once the loan funds, you will receive the keys to your new home.
VA Home Loan Types
There are four main types of VA home loans:
- Purchase Loan. This loan can be used to buy a home or condominium as your primary residence. You can also use it to buy a manufactured home and/or lot.
- Interest Rate Reduction Refinance Loan (IRRRL). This loan can be used to refinance an existing VA-backed home loan at a lower interest rate. You can also refinance from an adjustable-rate mortgage to a fixed-rate mortgage.
- Cash-Out Refinance Loan. This loan can be used to refinance an existing VA-backed home loan to get cash back. You can use the cash for any purpose, such as paying off debt, making home improvements, or paying for college.
- Native American Direct Loan (NADL). This loan can be used to buy, build, or improve a home on federal trust land. You can also use it to buy or improve a home to be used as your primary residence on tribal trust land.
VA Loans are a great way for eligible borrowers to get into a home with little to no money down, and they offer competitive interest rates and flexible repayment terms. However, there are a few things that borrowers should be aware of before taking out a VA Loan, such as the funding fee and the fact that the VA does not guarantee the full value of the loan. Overall, VA Loans are a great option for eligible borrowers who are looking to purchase a home with little to no money down. However, it is important to be well-informed before signing on the dotted line.
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