Types of Loans
VA Loan
What is a VA Loan?
VA Loans are designed to help veterans, service members and their survivors buy, build, improve or refinance a home.
The biggest attraction of a VA loan lies in its terms. They can be funded 100% – meaning without any downpayment.
The requirements are also less stringent than for other types of financing. Rates on are typically lower than a conventional mortgage. This is because the loans are guaranteed by the government and carry much less risk to the lender.
VA loans also have much more lenient borrowing requirements.
Types of VA Loans
Purchase Loan
A purchase loan can help you buy, build or renovate a home with no downpayment. This applies as long as the amount you’re borrowing is below the loan limits set by Fannie Mae and Freddie Mac.
These loans have more relaxed requirements than say a standard conventional loan. There is also no private mortgage insurance (PMI) requirement.
Even if your credit score isn’t perfect, you may still be able to qualify for a VA purchase loan.
Native American Direct Loan
These loans are for veterans or military service that have a spouse that is native american. The difference between this loan and a purchase loan is the funds are allocated to buy, build or improve a home on federal trust lands.
Just like with a purchase loan, there is no downpayment and no PMI. You will also be able to keep the same interest rate throughout the life of the loan.
Another advantage of a NADL is that you have a reusable benefit. This means you can get a NADL for more than one property.
Interest Rate Reduction Refinance Loan
This works very much like a traditional refinance. You replace your existing loan with a new loan at a lower interest rate.
Cash Out Refinance Loan
This works much like a traditional Cash Out Refinance. The difference is if you are currently in a non-VA loan, you can refinance into a VA loan.
Cash out loans also serve to help take out money for various uses such as:
- Reduce debt
- Pay for college
- Make home improvements
- Free up equity for other needs
How Do You Qualify for a VA Loan?
Personal Qualification
To qualify a person must either have:
- Served a minimum of 181 active days of service in peacetime.
- Served 90 consecutive active days of service during wartime.
- Served more than 6 years with the National Guard or Reserves.
- Are a spouse of a service member who lost their life in the line of duty.
VA Loan Property Type
The property you purchase must be a one to four bedroom family home and it must be your primary residence. You cannot purchase vacation home or investment property with a VA loan.
Some lenders will finance condos and manufactured homes through the VA program, but not all.
COE
The COE (certificate of eligibility) is the document you need to get to show your lender that you’re eligible for a VA loan. Basically the COE outlines your proof of military service.
Your mortgage broker can help you through the process of obtaining the necessary documentation.
Income
Though VA loans do not have a debt to income (DTI) limit, lenders usually do.
How much you’ll be approved for relative to your income will depend on your earnings, credit score and downpayment (if any).
Credit Score
VA loans don’t have a minimum credit score, though most lenders will have this guideline in place.
The general requirement is at least a 580 credit score, but again this can vary.
Credit scores required for a cash out loan tend to be a bit higher.
VA Loan Limit
Loan limits for a VA loan are based on conventional loan limits. As of right now that limit is $726,200 for the contiguous United States. Certain areas, such as Hawaii, will be higher.
If you wish to borrow above the limit, you will need to apply for VA Jumbo loan.
Jumbo loans follow similar guidelines to regular jumbo loans. The difference is that like a standard VA purchase loan, there’s no downpayment required.
Funding Fee
Most loans require a funding fee. The reason for this is to cover the cost to taxpayers.
A normal funding fee is between 1.4% – 3.6% of your loan amount.
The cost of the fee is determined by several factors:
- The length of your service.
- Size of your downpayment.
- Whether is a first-time VA loan or a refinance.
Surviving spouses, veterans who receive disability and purple heart recipients are exempt from funding fees.
Funding fees can be rolled into the mortgage.
Is a VA Loan Right for You?
VA loans are a benefit of military service. They can be a great way to get into a home with no downpayment and better terms.
To explore whether a VA loan will benefit you, give me a call at (415) 302-6416.
