VA Mortgages Defined
A VA mortgage is a mortgage available to service members, veterans, and eligible surviving spouses. It is a benefit provided by the Department of Veterans Affairs (VA) and is guaranteed by the federal government.
Benefits of a VA Mortgage
VA mortgages are of great benefit to eligible service members, veterans, and surviving spouses. Because these loans are guaranteed against default by the government, VA-approved lenders are able to offer competitive rates on VA mortgages. The VA also has a number of other benefits that include the following.
No Down Payment
Probably the best benefit to a VA mortgage is the fact that it is a 100% financed, no down payment loan. Being able to finance the entire purchase price of your home is welcomed news for many first-time home buyers, though anyone obtaining a VA mortgage can buy with no money down.
Finance Closing Costs
In addition to financing the entire purchase price of your new home, the VA allows its approved lenders to include up to 3 percent of closing costs in the loan as well. Closing costs include fees charged by the lender to originate your loan, fees charged by the title company or escrow attorney, and prepaid interest and taxes.
No Private Mortgage Insurance
The guarantee given by the government protects lenders against losses, should a default occur. Because of this guarantee, no Private Mortgage Insurance (PMI) is required on VA mortgages. PMI can add hundreds of dollars per month to a traditional mortgage loan payment, so this benefit represents a huge overall savings to those eligible for the VA mortgage benefit.
Easier to Qualify
VA mortgages were established in 1944 to help returning service members purchase homes. To encourage this, the requirements to qualify were less strict than other mortgages, and remain so today. The VA mortgage is great for first-time home buyers or those with less-than-perfect credit.
Eligibility and Qualification for a VA Mortgage
The VA determines eligibility for the VA mortgage benefit. Factors for determining eligibility include dates and duration of service and discharge status. Eligibility for a VA mortgage does not mean you qualify for a VA mortgage, however. In order to qualify, you must obtain a Certificate of Eligibility (CoE) and be approved by a VA-approved lender as the VA does not actually originate loans. Factors for qualification include credit, income, debt-to-income ratios, and other factors. To obtain your Certificate of Eligibility (CoE), click here.
Other VA Mortgage Considerations
The maximum amount that can be loaned from the VA is $417,000. This amount is higher in some specific areas of the country. The 2013 VA County Loan Limits can be viewed here.
VA Funding Fee
When you obtain a VA mortgage, the VA charges a funding fee that is typically 2.15 percent of the loan amount. This funding fee can be financed into the mortgage and will vary based on certain factors.
One fact that is known to few is that VA mortgages are assumable. This means that if someone is interested in purchasing your home and they are eligible and qualify for a VA mortgage, they can take over your interest rate. This is of huge benefit when interest rates start to rise as you can offer an interest rate lower than a lender.
VA Mortgage Options
With a VA mortgage, you can purchase a home, refinance a home, or complete an Interest Rate Reduction Refinance (also known as a streamline refinance). You can also re-use your VA mortgage benefit to purchase a new property, should you decide to move.