What is a VA loan?
I’ve written about conventional loans, FHA loans, and adjustable rate mortgages. This post is an overview of VA loans and will go a little deeper than our high-level post covering all four of these loans.
The US Department of Veterans Affairs is commonly referred to as simply, “the VA.” Mortgages are secured loans on homes, where the house is the collateral for the loan. There are some kinds of mortgages that are guaranteed by the government. VA loans are an example of a government-guaranteed loan.
According to the VA’s website, active servicemembers, veterans, and surviving spouses are eligible to receive the VA home loan benefit. Borrowers still receive a loan from a private lender; however, the government guarantees a portion of the loan, which allows the borrower to receive more favorable terms.
Probably the most advantageous part of VA home purchase loans is that the borrower can receive a competitive interest rate without any down payment or private mortgage insurance (PMI). In contrast, conventional loans require a 20% down payment to avoid PMI, which is a monthly payment to an insurer to guarantee the mortgage. If a conventional borrower puts less down than 20%, they pay this PMI until they have 20% equity in the home. FHA loans only require a 3.5% down payment; however, borrowers must pay a mortgage insurance premium for the life of the loan.
The VA has additional requirements beyond being a servicemember, veteran, or surviving spouse. Borrowers still need to have the income required to be able to make the monthly payments. Additionally, borrowers need to have decent credit to be eligible.
If you’re thinking of purchasing a home and wonder if you might qualify for a VA home purchase loan, click here for instructions on how to apply.