What are VA Loans and Who Qualifies?

More than 800,000 veterans live in Illinois with over half of that number residing in the Chicago area. For these veterans and their families, a VA-backed loan can be an excellent mortgage solution. For example, VA loans are one of the few mortgage types that usually don’t require a down payment. * VA mortgages can provide a way for deserving veterans with limited resources to purchase the home of their dreams.

Eligibility

The Department of Veteran Affairs defines the basic eligibility requirements as those

  • Having served 90 days on active duty during wartime
  • 181 days of active service in peacetime,
  • 6 years in the National Guard or Reserves
  • The spouse of a service member who died on duty or as a result of a service related problem.

Advantages of a VA Loan

VA loans to qualified borrowers often do not require a down payment in contrast to most other loans. * It is possible to purchase a home with little or no cash out of pocket. This benefit alone makes home ownership available to thousands of eligible people who might otherwise be unable to secure financing.

Like conventional loans, credit scores are used to qualify applicants, but VA credit score requirements are a bit lower than traditional mortgages.

Because VA loans are government-backed, loan originators frequently do not require private mortgage insurance. This is another significant financial advantage of the program that can save a borrower thousands of dollars over the life of a loan.

VA loans guarantee borrowers a greater degree of safety. Because of VA loans’ government backing, banks issuing them incur less risk and therefore can afford to present less stringent qualifications for potential borrowers. Similarly, mortgage rates are often lower than conventional loans because of the reduced risk to lenders.

With conventional loans, some lending institutions impose a prepayment penalty if the borrower wants to pay off some or all of their mortgage earlier than the original schedule calls for. This prepayment penalty is based on lenders wanting to offset lost interest payments that result from paying the loan off early and is a strategy that financial institutions use to recoup some of that interest.

In contrast, VA loans allow borrowers to pay off their home loan at any point without having to worry about a pre-payment penalty. This arrangement gives borrowers the advantage of being able to consider future home purchases and refinancing options.

An Excellent Opportunity for Veterans

The Department of Veteran Affairs points out that the VA Home Loan program is more advantageous today than ever. “In recent years, lenders nationwide have tightened their lending requirements in the wake of the housing market collapse, making the VA Loan a lifeline for military homebuyers, many of whom find difficulty when faced with tough credit standards and down payment requirements.”

Veterans, service members and any other persons qualified for a VA loan receive an “entitlement” from the Department of Veterans Affairs to a financial guarantee on a mortgage to be issued by one of their approved lenders. The Veterans Administration itself doesn’t lend. It guarantees; the approved banks lend the money. This government backing lends strength to eligible candidates seeking mortgages.

VA-backed Mortgage Loans Still Require a Sound Borrower

It’s important to remember, however, that eligibility does not necessarily guarantee a VA loan. Both the VA and its approved lenders set the loan guidelines that prospective borrowers must meet. The VA requires meeting a satisfactory credit risk. Lenders have more stringent requirements, especially in today’s economic climate. The VA free “Lighthouse Program” can strengthen veterans’ financial health.

The fees required of veterans are significantly lower than those for other kinds of borrowers but they are not non-existent. For the first-time VA loan borrower with a zero down payment loan, the funding fee would be approximately 2.15 percent of the loan amount. If the borrower puts 10% down, this fee is reduced to 1.25 percent of the loan. Reservists and National Guard members can expect to pay about a quarter of a percentage point more in fees than active-duty members.

For disabled veterans, the VA loan funding fee is waived.

As you might have guessed, VA loan interest rates are strongly influenced by the applicants credit scores. Nonetheless, VA loans typically offer lower rates when compared to equivalent conventional loans.

VA loan guidelines are complex, dealing with such issues as borrowing more than the desired home’s value, having more than one VA loan at a time, the degree of complexity in obtaining VA financing, maximum loan amounts and borrowing extra for home improvements. Of course we suggest that find a trusted mortgage partner to help you make the right choices.

The loan originators at Beata Bukowski have a combined two decades of experience in helping deserving veterans and their families secure VA-backed mortgage loans. Call us today for a no-obligation consultation and answers to your VA loan questions.

* A down payment is required if the borrower does not have full VA entitlement, or if the loan amount ig greater than $417,000. Fairway is not affiliated with any government agency. These materials are not from HUD or FHA and were not approved by HUD or a government agency.