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A Salute to Veterans Day: The Breakdown of VA Loans

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Veterans Affairs (VA) loans empower Veterans and active-duty service members to achieve their goal of homeownership. Let’s discuss the ins and outs of this program. What are the benefits of applying for a VA loan? What makes someone eligible to apply? What is the application process like? Whether you’re a Veteran, an active-duty service member, or simply interested in learning about VA loans, you’re in the right place! 

 

WHAT IS A VA LOAN?

A VA loan is a mortgage loan that is guaranteed by the US Department of Veterans Affairs to current and former miliary service members who qualify. The program is for Veterans, members currently enlisted, reserve members, and some of the surviving spouses of deceased, missing, and Prisoner-of-War (POW) service members.  

The purpose of the program is to offer affordable home loans to Veterans with no down payment requirement and no Private Mortgage Insurance (PMI). VA loans are also more forgiving in terms of credit requirements, making them accessible to those with less-than-perfect credit. Additionally, some financial institutions can offer flexible repayment options for Veterans to purchase, refinance, or build homes. These loans provide a unique path to homeownership, financial security, and housing stability to those who have served our country.  

 

HOW DOES IT WORK?

The Department of Veterans Affairs establishes the guidelines for lenders to abide by for applicant qualification. The rules also determine which financial institutions may and may not offer VA Loans. Properties that will be occupied as a primary residence with up to four units are eligible for VA financing.  

 

WHAT ARE THE SPECIFIC FEES ASSOCIATED WITH A VA LOAN?

VA loans may have a funding fee, which is a one-time payment that the borrower pays on a VA-backed loan. The funding fee may not apply if you meet certain requirements, such as receiving compensation for a service-related disability. The funding fee may be rolled into your loan amount when purchasing a home with a VA backed loan, or you may pay it in full at the time of closing. Funding fees may vary based on if it is your first VA loan or a subsequent use and on your down payment, should you choose to put money down.  

 

WHAT ARE THE BENEFITS TO A VA LOAN?

Features of a VA Loan include: 

  • No down payment requirement 
  • No Private Mortgage Insurance  
  • Limited closing costs 
  • Competitive interest rates, often lower than conventional loans 
  • Borrowers can obtain multiple VA loans over their lifetime 
  • VA loans are assumable, which is a unique opportunity during the sale of a home held by the VA where the new buyer could be considered to step into the remaining loan terms, subject to qualification with the loan servicer. This can be a great option for a family member buying a home from a relative.  
  • Refinances are available 

 

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WHAT ARE THE STEPS?

To determine eligibility, Veterans can request a Certificate of Occupancy (COE) or ask their lender to obtain it on their behalf at the time of pre-approval. The COE may be available immediately or may require some further information, which your lender can help you through.  

The pre-approval process is done with your lender, rather than the VA directly. A loan officer will be able to help you through the paperwork needed to verify your income, credit, and assets. They will work with you through the next step of making a successful offer on a home.  

When going under contract, a “VA Escape Clause” will be required. This gives the buyer an option to cancel the contract should the home not appraise for the agreed upon purchase price.  

Once you are under contract to purchase the home, your lender will work closely with you and your realtor to get a property appraisal ordered. An appraisal is separate from a home inspection and is used as an estimate of the home’s market value.  

Next, the appraisal will be submitted and reviewed. Once reviewed and accepted by the VA, the lender will work with an attorney who will complete a title search on the home.  

Your closing will be scheduled and you will receive your final closing figures at least three business days prior to closing. This will come in the form of a document called a “Closing Disclosure” and will outline monthly payments, funding fee, if applicable, closing costs, and the total of the funds you will need at closing.   

Once closing is complete, a congratulations is in order—you are a homeowner!  

 

VA loans started as an offering of gratitude and support for our brave servicemembers who have dedicated their lives to protecting our nation. These loans not only ease the path to homeownership, but also offer compelling financial benefits, like lower interest rates and eliminating the requirement for a down payment. Look into VA-approved lenders, explore the options, and let the VA loan pave the way to your home sweet home. 

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About Annie Rogers

Annie has been a consistent presence at the credit union for 20 years, with mortgage experience spanning 15 years. As a Mortgage Origination Supervisor, she proudly stands with her team and enjoys helping borrowers reach their goals of homeownership. A lifelong Vermonter, Annie resides in Williston with her husband, two kids, and dog.

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