The US Department of Veteran Affairs has a mortgage loan program called the VA (Veteran Administration) Loan, which allows active service members, veterans, and surviving spouses, to buy a house without paying a high down payment. They can also avoid private mortgage insurance and get competitive interest rates. While private lenders issue these loans, the federal government backing provides all the benefits. This article talks about the VA loan program, its types, and its benefits.
VA Loan Program
This loan can be used by the borrower to not just purchase a home but also to build or add any improvements or repairs to the house. The money can even be used to refinance a previous mortgage. However, the loan amount does not directly come from the Veterans Administration, it comes from other private lenders like mortgage companies or the bank. VA simply sets a standard of qualification and the terms and conditions for the loans, along with the federal backing of this program.
Loans like the VA loans and other similarly government-backed loans like Federal Housing Administration Loans have gone through a securitization process known as Ginnie Mae. They have to go through the Government National Mortgage Association, which ensures that the security of this loan is guaranteed by the government.
According to the terms and conditions, the loan is provided only to active service members, veterans, and their surviving spouses. So when a person approaches VA for a loan, they are expected to present the certification attesting that they match either of the criteria. This documentation is easily available on the VA website and can be downloaded when required.
VA Loans Types
Home Purchase Loans
The most common type of loan used to buy/purchase a home, it can be used to get a house without the requirement of a down payment or private mortgage insurance. The interest rate are competitive, making it reasonable and affordable.
Cash-Out Refinance Loans
This type of loan turns home equity into cash. If you need money to make any home improvements, get out of debt, or fund tuition fees, this loan will offer you a new mortgage for an amount that’s larger than the existing one to take care of your financial needs.
Interest Rate Reduction Refinance Loan
Also known as VA Streamline Refinance Loans, this gives the borrowers an opportunity to ask for a lower interest rate by refinancing their existing loan. They can either refinance their fixed rate loan to a lower interest rate or they can change their adjustable-rate mortgage to a fixed-rate mortgage structure.
Native American Direct Loan
All the VA loan benefits apply to Native American veterans who need help with financing their home’s purchase or construction. They can use the loan for home improvement projects as well and enjoy a reduced interest rate.
Adapted Housing Grants
This is a type of grant which allows those veterans who survived a service-related disability to buy a home that fits their condition. They can also build or modify an existing home as per their needs due to the disability.
VA Loans Benefits
One of the main benefits is that the borrower can pay off the loan early without any prepayment penalty. Additionally, the closing cost may be paid by the seller; however, there is a limit to the amount. Another benefit of a VA loan is that defaulting can be avoided if needed; one just needs to contact VA for help. There is no private mortgage insurance required and close to no down payment required. Only if the purchase price is higher than the property value, a down payment may be asked.