What is a VA Loan

The VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA), issued by participating approved lenders. This program is for American veterans, military members currently serving, reservists and select surviving spouses. The VA itself does not originate loans, but it does set the rules for who may qualify, minimum guidelines and requirements for the home loan program. The VA home loan program is to provide home financing for eligible veterans and to help veterans purchase properties with no down payment. Since the creation of the program, 20 million VA home loans have been insured by the government.

Why Choose a VA Loan

One of the best aspects of the VA loan is the no down payment guarantee, for qualified borrowers, that makes initial costs cheaper when choosing a home. VA qualified borrowers will be able to purchase up to $453,100 in most of the country before needing to put any money down, compared to conventional loans, where a 3 percent down payment may be required. Conventional borrowers who can’t afford a 20 percent down payment often pay for private mortgage insurance, an expense that can add up quickly. With a VA loan, upfront costs for purchasing a home and mortgage insurance can be an expense eliminated for buyers. Most VA buyers do, however, pay an upfront funding fee they may choose to roll into the loan. This funding fee is paid to the VA and helps keep the loan program running.

In addition to no down payment, with a VA loan there is no prepayment penalty. Homeowners have the option to pay off most or all of the loan before the repayment period is over without penalty. Refinancing without re-qualifying is also a large benefit. With most other home loans, you will need to repeat the qualification process in order the refinance your home loan. With a VA loan, there is no re-qualifying.

The VA home loan program provides qualified homeowners with the opportunity to take advantage of the numerous benefits they have earned from their service. These government-backed loans, increasing in popularity, can be used to:

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Buy a home or a condominium unit in a VA-approved project

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Build a home

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Purchase a manufactured home or make home improvements

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Purchase a manufactured home

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Refinance an existing VA-guaranteed or direct loan for a lower rate

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Refinance an existing mortgage or other indebtedness secured by a lien

How Does a VA Loan Work

To qualify for a VA loan, a potential borrower should prequalify with an approved VA lender. Those interested will need to have likely met the service requirements of 181 days served on active duty during peacetime, 90 days on active duty during wartime, or 6 years served in the Reserves or National Guard. Once prequalified, borrowers can seek preapproval – which will require a more detailed look at bank statements, tax returns and pay stubs - to determine a potential qualifications amount. This step provides a potential home-buyer with a preapproval letter when making an offer on a home. These two steps, prequalification and preapproval, do not bind or create any type of obligation between the borrower and lender.