The Benefits of Using a VA Loan

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There are a number of frequently asked questions about VA-guaranteed loans. These questions include concerns about who is eligible for a VA-guaranteed loan and what are the steps involved in getting one. VA-guaranteed loans are for veterans with honorable service, some reservists, and a few surviving spouses. Check with VA to find out if you qualify.

There are five steps in arranging a VA-guaranteed loan.

Apply for your certificate of eligibility on VA Form 26-1880 from your local VA office. If you do it by mail, it can take several weeks. If you can go to the office in person with your discharge papers, you can speed up the process. Decide on a house you want to buy and sign a purchase agreement. Order an appraisal from VA. Apply for a loan, and make sure that your lender knows you are applying for a VA loan. Close the loan and move into the property. Some lenders stress the fact that getting your eligibility certificate in advance from the VA can speed up the process by several weeks. This is because the loan will not close until the lender has the certificate. However, since there is no down payment and the loan is for the total value, the credit requirements are often stricter than those with a conventional mortgage where you use some of your own money for a down payment.

Many lenders point out that although you aren`t required to make a down payment with a VA loan, there is a funding fee, which is like mortgage insurance. The money goes into a fund that the VA uses to pay off any loans that default. This is different from regular mortgage insurance. The basic funding fee of 2.0 percent, which is usually paid up front, must be paid by all but certain exempt veterans. If a person makes a down payment of 5 percent or more the funding fee is reduced to 1.5 percent. A down payment of 10 percent will reduce the fee to only 1.25 percent. Other closing costs may vary according to the lender. These costs could include the VA appraisal, the credit report, the title search and title insurance, recording fees, and a survey fee.

Veterans who use a VA-guaranteed loan may also have an opportunity to refinance the loan under special conditions. This refinancing is referred to as an Interest Rate Reduction Refinancing Loan (IRRRL). Generally when refinancing a VA-guaranteed loan, the result is a lower interest rate. However, the exception to this is refinancing an adjustable rate mortgage (ARM) to a fixed rate mortgage, which may increase the interest rate.

An IRRRL may be done with no money out of your pocket because you can include all the necessary costs in the new loan. An IRRRL cannot, however, be used to refinance into an ARM loan. When using an IRRRL you cannot receive any cash from the loan proceeds, and the loan may not be greater than the sum of the outstanding balance on the existing loan.

Although it is true that you can use a VA-guaranteed loan to buy more than one house, you can only use it to buy one house at a time. If you buy a home with a VA-guaranteed loan and then decide to rent it out, you cannot use your VA benefits to buy another home. The same applies if you sell the home, and the buyer assumes your mortgage. The only way you can use your VA loan benefit again is to have the old loan paid off.

Anyway, any help you can get as a benefit for having been in the military service is definitely worth shouting about. It offers you some real help, and it may make your life more rewarding. For more information on VA loans, look on the Internet at www.va.gov/vas/loan or call the Department of veterans Affairs at 1-800-827-1000.