10 Things Most Borrowers Don’t Know About VA Loans
1. They’re reusable. You can use your full VA entitlement over and over again as long as you pay off the loan each time. But you may be able to obtain another VA loan even if you've lost one to foreclosure or currently have one.
2. They’re only for certain types of homes. If you're planning to buy a working farm, a downtown deli or a fixer-upper, the VA loan may not be for you. It's mainly designed for properties in "move-in ready" condition, including single-family homes, condos, modular housing, some multi-unit properties and more.
3. They’re for primary residences only. Don’t bother trying to use your VA loan benefits to buy an investment property or a vacation home in the Poconos. VA loans are for primary residences, although you can use this benefit to buy a duplex or another multiunit property, provided you live in one of the units. The VA does offer exceptions, though lenders also have their own standards that might affect occupancy requirements.
4. They’re not issued by the VA. The VA isn’t in the business of issuing home loans. Instead, the agency provides a guaranty on each qualified mortgage loan.
5. But they’re guaranteed by the government. If you have a VA entitlement, the agency typically guarantees up to a quarter of the loan amount. The guaranty gives lenders confidence and helps service members secure great terms and rates.
6. They’re available despite foreclosure or bankruptcy. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their VA loan benefit.
7. They don’t have mortgage insurance. Mortgage insurance is a monthly fee you pay with other programs when you're not putting at least 20 percent down. The VA's guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month.
8. They come with a mandatory fee. There’s no mortgage insurance with VA loans, but there is the VA Funding Fee. This fee helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities.
9. There's no limit to how much you can borrow. With the VA loan benefit, qualified Veterans can borrow as much as a lender is willing to give them, all without the need for a down payment. That’s obviously a huge benefit. Conventional loans often require at least 5 percent down, but down payments on larger loans can easily reach 15 to 20 percent. A 20 percent down payment on a $400,000 house is $80,000.
But what about the VA’s loan limits? These aren’t a cap on how much you can borrow. Instead, lenders and the VA use these county-level limits to determine what kind of down payment might be needed for Veterans without their full VA loan entitlement. Buyers with their full entitlement don’t have to worry about these limits or the need for a down payment.
10. They don’t have a prepayment penalty. You can make extra payments any time you want, saving you a boatload in interest over the life of your loan. You can even structure your payments to automatically deduct a little extra every month. Just an extra $100 per month can shave years and tens of thousands of dollars from the balance.
More Anwers
Who is eligible for a VA loan?
- Veteran
- Active duty service member
- National Guard member
- Reserve member
- Surviving spouse
A VA appraisal is required
One contingency of a VA loan is that you must get a VA appraisal. The VA appraisal is an evaluation of your proposed property value. An independent VA-certified appraiser inspects the condition of the home, compares surrounding sales, and makes a value assessment.
Your closing costs could be covered by the seller
With a VA loan, the seller can pay a limited amount of your closing costs and prepaids (settlement costs associated with the loan). All of these terms, however, must be negotiated in your contract with the seller.
