What is a VA Loan?A VA loan is a loan that’s backed by the Department of Veterans Affairs. The VA doesn’t actually issue the loan; instead, it guarantees a portion of it so lenders can feel more comfortable letting military service members and veterans borrow the cash to buy a house.
Who’s Eligible for VA Loans?Active-duty service members, military veterans who have been honorably discharged, and some spouses of veterans may be eligible. The key is that you’re either currently serving (the Guard and reserves count, as well) or you were discharged under honorable conditions.
Benefits of VA LoansWhen you use a VA loan, you’re entitled to certain benefits, such as:
- No down payment required. You can buy a home with zero down if you’re using a VA loan; just bear in mind that your monthly payments will be higher than they would be if you were to put money down on the home.
- No private mortgage insurance required, even if you put down less than 20 percent as a down payment. Lenders can’t require you to pay for PMI like they could with other loan types. That’s because the VA is backing the loan, and lenders know that if you default on your payments, they can go to the VA for reimbursement.
- Limits on closing costs. The VA limits the amount of money you can be charged in closing costs. This prevents lenders from trying to make extra money off you when you borrow from them.
- Sellers can pay closing costs. Under the VA’s rules, sellers can pay all of a buyer’s loan-related closing costs and up to 4 percent in concessions.
- Lower average interest rates. VA loans have statistically had lower average interest rates than other types of loans.
- No prepayment penalties. Your lender can’t penalize you for paying off your mortgage early.
- Refinancing options. Homeowners who have existing VA loans can lower monthly payments by getting a new interest rate. Homeowners who financed a property with another type of loan (not a VA loan) can refinance right into the VA loan program.
- Help if you can’t make your mortgage payments. If you run into trouble making your mortgage payments, the VA has foreclosure avoidance specialists who can advocate for you and find alternatives that can help.
- Assumable mortgage. A VA loan is an assumable mortgage, which means if the person buying the home from you in the future qualifies on his or her own for a VA loan, that person can simply take over your payments. In some cases, that’s a big selling point – especially when mortgage interest rates are rising.
- Reusable benefit. You can use more than one VA loan. The only catch is that you must pay one off completely before you open another one. If you sell your home for at least what you owe the bank on it, your loan is settled and you can open another one to buy your next house.