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What Is a VA Mortgage Loan?
A Veterans Affairs mortgage, or VA home loan, is a loan backed by the federal government and available for veterans, service members, and some military spouses. While issued by private lenders, the loans are guaranteed by the Department of Veterans Affairs, more commonly known as the VA. This government-backing means these loans often have better-than-average interest rates, require no down payment, and often have easier qualifications for borrowers than other loans. VA loans can be used to finance a variety of mortgages products, including traditional home loans, refinancing, as well as some housing grants designed for veterans.
House Purchase Loans or Traditional Mortgages
The main type of mortgage VA loans refer to are traditional home loans. These are loans used to finance the purchase of a house, with the expectation that the borrower will live in the house they purchase.
VA mortgages benefit from being backed by the government, rather than a private bank assuming the risk of the loan. They require no down payment, so long as the sales price does not exceed the appraised value of the home. There’s also no private mortgage insurance premium requirement, or PMI, as the loans are government-backed. In a non-VA mortgage, a PMI is required if more than 80 percent of the home’s value is financed. For 2018, the VA will finance up to $453,100 in most areas, though high-cost areas can see financing up to $679,650.
Another advantage to being government-backed is a more competitive interest rate. The VA also limits the amount that you can be charged for closing costs, keeping costs lower for you, and the seller might even pay the costs instead.
There are no penalty fees for paying the loan off early, and if you are unable to make payments, the VA may be able to provide assistance where other lenders would be reluctant. There will be a one-time funding fee, however.
In general, because the government is assuming the risk of the loan, instead of you, it’s easier to qualify and you get better rates and assistance.
Refinancing with the VA comes in the form of an Interest Rate Reduction Refinance Loan, called an IRRRL or Streamline Refinance Loan. This is available to those who already hold a VA loan and want to refinance to a lower interest rate. Unlike traditional refinancing, there is no appraisal or credit underwriting package, and will likely cost you nothing to complete. Instead of paying out of pocket, the costs are rolled into the new loan, or by making the new loan with a high enough interest rate that enables the lender to pay the costs.
The downside is that, if you are refinancing a VA loan to a fixed-rate loan, you may find the interest rate goes up. Lenders are not required to give you an IRRRL, but any lender that offers VA loans can process the application. You also cannot receive any cash from the loan proceeds (so no cash-out refinancing is available).
Native American Direct Loan (NADL)
Similar to the traditional VA home loan, a Native American Direct Loan will help veterans buy, construct, or improve a home on Federal Trust Land, often called reservations.
Unlike a normal VA mortgage or loan, the VA is the direct lender of the NADL. There are no private lenders. This means that there is a dedicated VA staff to assist you with the loan, and no down payment or PMI. Closing costs are also generally lower than a standard bank loan.
NADLs currently have a 4.5 percent interest rate, but this can fluctuate with the market.
A 30-year-fixed-rate mortgage, the NADL has a maximum limit of $424,100 in most areas, though some high-cost counties qualify for higher loan limits.
Adapted Housing Grants
The VA offers grants to those disabled veterans looking to purchase or remodel a home to accommodate disabilities. Or, as the VA puts it, “live independently in a barrier-free environment.”
The Specially Adapted House Grant, or SAH, can help veterans with service-connected disabilities construct their own home on land they acquire, or to remodel an existing home. It can also be applied to the unpaid principal mortgage balance of a home bought without a VA loan. The maximum grant is $35,593.
The Special Housing Adaptation Grant (SHA), on the other hand, is slightly different. It allows a veteran or family member to adapt a home to a service-connected disability, rather than do a full remodel. It can also help the a veteran or family member adapt a house they intend to purchase, or purchase an already adapted home for the veteran to live in. The maximum grant is $6,355.
Finally, for veterans eligible for the above grants, but in a temporary housing situation, such as living with family while a house is being built, a Temporary Residence Adaptation Grant (TRA) may be given.
Who Is Eligible for a VA Mortgage Loan?
In general, to be eligible for a home loan or NADL, you need to have served for 90 days of active duty in a previous war or conflict, or for 181 continuous days during peacetime.
Those who served in the Gulf War, from August 2, 1990 to a date to be determined, are required to have 24 months of continuous duty.
Those currently serving active duty are eligible after 90 days. Those who served less than 90 days but were discharged for a service-connected disability are also eligible.
Certain US citizens who served with an allied government’s armed forces in World War II may also be eligible, as are service members of certain organizations such as Public Health Service officers and cadets of military academies.
Finally, you will need a Certificate of Eligibility (COE) which verifies to the lender that you are eligible for a VA-backed loan.
Anyone with a dishonorable discharge is ineligible.
Exceptions to these rules can be found at the VA’s eligibility list.
For an IRRRL, a COE is not required. While you can use a previous COE, if obtained, it’s not required. With this said, an IRRRL can only be used to pay a VA-backed loan. If you have a second mortgage, the holder must agree to be a subordinate on the lien, so the VA loan will become your first mortgage. You must also certify that you previously occupied the home.
SAH, SHA, and TRA
The VA has a list of service-connected disabilities (often considered Permanent and Total) eligible for the three grants. In short, a SAH grant requires a veteran with a service-connected disability to permanently reside in the residence that they own. An SHA has less stringent requirements as far as disabilities go, and the home can be owned by the individual or a family member. To be eligible for a TRA, you must already be eligible for an SAH or SHA.
Veteran Spouses and Dependents
Spouses of veterans may be eligible for a VA loan under certain conditions. If you are the unremarried spouse of a veteran who died while in service or due to a service-connected disability, or if you are the spouse of a veteran who is missing in action or a prisoner of war, you are eligible. Surviving spouses who remarry after they are 57 years old on or after Dec. 16, 2003, or surviving spouses of certain totally disabled veterans whose disability was not the cause of death are also eligible. Dependents are unlikely to qualify for VA loans without the veteran or surviving spouse (e.g. the surviving spouse being the dependant’s parent).
VA Mortgage Lenders: Where to Apply for a Veterans Home Loan
For VA mortgage loans, nearly any lender or bank can provide a VA loan and help you apply. Simply ask the lender whether they offer VA-backed loans. USAA and other military banks will, of course, offer VA loans as they were founded for use by veterans and servicemembers. If you need help finding a lender, contact the VA and they can help you find one.
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