Veterans Affairs, or VA, loans are one of the most popular perks of military service. With little-to-no down payment required and competitive interest rates, VA loans have helped more than 22 million service members become homeowners.
While these loans are an excellent option for many current and former service members, they do come with certain stipulations and requirements that set them apart from traditional loans. The following are a few things about VA loans that both borrowers and realtors should know.
1. VA loans can be used more than once
VA loans can be used over and over again – as long as the previous entitlement is paid off. Those who have a VA loan on their current home – or have lost one to foreclosure – are often still able to obtain a new loan.
2. VA loans are only for certain types of homes
Planning on buying a working farm, vacation condo, or fixer upper? A VA loan might not be for you. VA loans are available for primary residences in “move-in-ready” condition. Businesses, vacation properties, or houses with serious structural damage may not qualify. Benefits can be used, however, to purchase multi-unit properties such as duplexes or apartment buildings provided you will live in one of the available units.
3. VA loans aren’t issued by the VA
The Department of Veterans Affairs doesn’t issue the loans themselves, but the government does guarantee them. The agency typically guarantees up to a quarter of the total loan amount; this gives lenders the confidence to offer great rates and terms to service members.
4. VA loans don’t require mortgage insurance
One of the most appealing aspects of VA loans is they do not require PMI, or private mortgage insurance. While most traditional mortgages require PMI if the down payment is less than 20% of the total cost of the home, VA loans have no such requirement; this means that service members can put less down on a home and save their cash for improvements, upgrades, moving expenses, or closing costs.
5. VA loans have additional fees
While they do not require PMI, all VA loans incur a VA funding fee. This fee helps keep the program going by working to lower costs and is required on both purchase and refinance loans. Funding fees can be rolled into the monthly mortgage payment, and those with service-related disabilities may be able to have their fees waived.
6. VA loans don’t have extra payment penalties
VA loans allow borrowers to make additional payments at any time without incurring additional fees. In addition to helping service members pay off their mortgages faster, it can help save thousands in interest fees over the life of the loan; paying as little as $100 extra a month towards the principal can make a significant difference over the life of a 30-year mortgage.
