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The United States Department of Veterans Affairs (VA) administers a government loan to eligible veterans as a benefit for their military service. If veterans are looking to obtain or refinance a mortgage, VA loans will provide it to them at a lower cost that other mortgages.

VA loans are not intended for use as business loans. However, a businesses owned by a veteran can benefit indirectly from a VA loan if the business is a home-based one.

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These loans are one of the most valuable benefits of military service. The Department of Veterans Affairs guarantees that the loan comes from private lenders. This ensures compliance with low-cost benefits and less stringent requirements. A VA statistic showed that since 1944 more than 25 million people have purchased a home using the VA’s mortgage loan program. Here is everything you need to know about VA loans.

How Do VA Loans Work?

Eligible borrowers can use these loans to secure up to 100 percent financing on the value of their desired home. This loan is available to use for purchasing a home, building a house, renovating, and even refinancing an existing mortgage.

The VA does not actually provide the financing of these loans. Instead, they determine eligibility, procure the terms of the loan, and see to it that the lenders follow through. Private lenders such as banks, mortgage companies in Fort Collins, and mortgage banks finance these loans with the backing and insurance of the US government. Because of this insurance, they require little to no down payment and offer reduced rates as these loans pose less of a risk to them.

In most cases, VA loans are easier to qualify for than conventional loans. People consider VA loans to be non-conforming loans because they do not follow the guidelines of typical, conventional loans. All private lenders need is a certification from the VA and, in some cases, for you to meet their standard requirements. However, these requirements are often flexible and demand easier credit scores.

Terms of VA Loans

A VA loan’s terms are also generous compared with other mortgage and federal loan programs. One of the terms is that they require no down payment except when the lender requires one or when the property’s purchase price is higher than the market value. Another term is that they need no private mortgage insurance. They also limit closing costs and may even shift the burden of closing costs entirely to the seller.

If you obtain a VA loan, you can escape prepayment penalties if you pay off the loan in good time. You can also get assistance from the VA in avoiding defaults. The VA fixes these benefits for all lenders, but credit score requirements may vary slightly depending on the lender.

Types of VA Loans

The Department of Veteran Affairs offers various types of home and refinance loans to suit the borrower’s situation.

The Home Purchase Loan

One of these is the home purchase loan. The VA home purchase loan is a standard mortgage loan backed by the VA. They aid veterans in acquiring homes at competitive interest rates and do not require a down payment or private mortgage insurance. These loans go at an annual rate between 5.99 percent and 6.44 percent for up to thirty years, depending on the amount. And although not all lenders will offer this form of VA loan, the terms vary from lender to lender.

Cash-Out Refinance Loan

The second type of VA loan is the cash-out refinance loan. These loans apply to mortgage holders seeking to borrow against the home’s equity in order to fulfill other financial obligations like school funding, debt repayment, and renovations. This loan type allows the mortgage holder to obtain a new mortgage at a more significant sum to convert the home equity into cash. The loan helps borrowers get total home value while also increasing their borrowing power. It is available to current VA loan holders and new applicants.

Interest Rate Reduction Refinance Loan

The third type is the interest rate reduction refinance loan. This loan is a streamlined VA refinanced loan that applies to borrowers with existing VA loans.

The interest rate reduction refinance loan helps existing loan holders to fund fixed rate loans at a lower interest rate. The loan aims to reduce borrowers’ monthly payments in servicing VA loans. This type of loan also allows borrowers to convert their adjustable rate mortgage into a fixed-rate mortgage.

The interest rate reduction refinance loan is similar to the rate refinance also provided by the VA. The only difference is in the rate or term of the refinance loan for those who do not have existing VA loans.

Other Types of VA Loans

Some other types of VA loans include the renovation loan, which finances the home purchase and the cost of renovations. The VA designed this loan to facilitate home improvements, but not many lenders have it on offer. Another is the Native American direct loan that helps eligible Native American veterans buy, build, or renovate federal trust land homes. They also offer jumbo loans, which grant amounts that exceed standard loan limits.

VA Grant for Veterans with Service-Related Disabilities

Additionally, the VA offers a grant for adapting housing for veterans with permanent disabilities from service-related injuries. This grant helps them modify their existing homes to accommodate their handicap.

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VA Loan Requirements

As stated earlier, the US Department of Veterans Affairs offers mortgage loans to veterans, their spouses, and those in active service. However, not everyone who served in the armed forces can qualify for these loans.

To qualify, you must have served actively for 181 days during peacetime or for 90 consecutive days in wartime. You can also be eligible if you have more than six years of service in the National Guard or Federal Reserve. Those who served under Title 10 or Title 32 for 90 days overall, with a minimum of 30 consecutive days, can also qualify.

Also, surviving spouses of service members who lost their lives during service or as a result of service-related disabilities can apply for VA loans with the condition that they have not remarried. This condition, however, has some exceptions.

In addition, you will need a certificate of eligibility (COE) to obtain the loan. The COE is a document that contains proof of service. It shows the lender that you are eligible for the VA loan. To get this certificate, you must submit evidence of service depending on whether you are a veteran, an active service member, a surviving spouse, or another eligible person.

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