A loan guaranteed by the Department of Veterans Affairs is available for qualifying veterans to buy a home. A VA loan has several advantages not found in a conventional loan. Perhaps the most important for buyers is that a down payment is not required. But there are other advantages veterans should know about.
Before a VA loan can be obtained, a potential buyer must submit an application, and request an appraisal of the property. Lenders that have VA approval for automatic processing can finalize a loan without waiting for VA to review either the appraisal or the application.
A VA loan does not require mortgage insurance even if the buyer makes no down payment. This represents a substantial savings over FHA loans, with mortgage insurance costs of 1.5 percent of the loan amount at closing and half a percent a month thereafter.
The VA does not provide loans to veterans. Rather, it guarantees a portion of the loan, thus protecting the lender from loss in case the veteran is unable to fulfill his obligation. Naturally, this provision attracts lenders and helps veteran buyers get better loan terms.
The VA home loan is designed to lower costs for the veteran buyer. The funding fee may range from half a percent to 3.3 percent, and may be paid out-of-pocket or included in the loan. Some veterans, such as those receiving service-connected disability compensation, are exempt from funding fees. The VA limits what the lender can charge for such expenses as appraisal, credit check and loan origination.
No Prepayment Penalty
With some home loans, paying off the balance earlier than agreed upon will incur a penalty. Lenders charge a prepayment penalty to ensure they make a profit from a loan. But there is no prepayment penalty with a VA home loan.
A VA home loan is not just for purchasing a house. It can also be used to make improvements on an existing home, to buy and improve a house at the same time, or to buy land with the condition that you are committed to building a home on it. A VA home loan can also be used to refinance a current home loan.
Counseling is available for veterans who buy homes with VA loans and later run into financial problems. The VA can help a veteran work out a new payment plan to prevent foreclosure. This counseling is available through the VA's Regional Loan Centers.
- Department of Veterans Affairs: VA Home Loan Handbook 29-91-1
- "The Military Advantage"; Christopher P. Michel & Terry Howell; 2009
- Photo Credit veterano de gerra image by Norberto Lauria from Fotolia.com
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