How do VA Loans work? – What Borrowers Should Know

VA loans offer an attractive route into the property market for veterans. However, many are not aware of the options available, or any possible restrictions VA loans carry.

So, how do VA loans work and what do you need to know about them?

How VA Loans Work

In short, a VA loan is a no-deposit mortgage backed by the Department of Veteran Affairs. The department does NOT issue the loan itself but rather backs (or guarantees) a portion of the loan against default.

Private lenders still offer the loan, just as with any conventional mortgage. But because it’s backed by the Department of Veteran Affairs, they can feel more confident offering certain benefits, such as no deposit.

Getting a VA Loan

Getting a VA loan involves jumping through certain hoops, as any mortgage does. You will need to pick a loan provider based on your requirements, but you can find a list of the 9 best VA loan providers here.

You’ will also need to meet certain requirements, such as choosing an appropriate property and finding a real estate agent that understands the VA loan process. Check out these 7 VA loan tips for more information.

Lesser-Known Points about VA Loans

So, other than not requiring a down payment, what else do you need to know about VA loans? Here are some of the lesser-known points about this incredibly attractive loan scheme.

 

1. It Never Expires

Your VA loan eligibility never expires, regardless of how long ago you served. Instead, your eligibility depends on when you served and for how long.

Get your DD Form 214 and give it to a VA loan provider. They can then request your Certificate of Eligibility, but you can do this personally from the eBenefits website.

2. You Can Use it More Than Once

Providing you pay off the loan when you sell your property, you can be eligible to use it on your next home purchase. You can do this as many times as you want.

3. VA loan rates are lower than standard loans

Generally, VA loan rates are slightly lower than those of standard loans. However, rates depend on your credit score, so this might not always be the case.

4. There is Greater Leniency for Credit Scores

That said, VA loans are much more lenient when it comes to low credit scores, bankruptcy, and other potentially problematic credit issues.

This is because they’re backed loans so there’s a greater degree of security. What’s more, the Department of Veteran Affairs considers your credit to be re-established after 2 years of clean credit.

5.  What Is This about a VA ‘Funding Fee’

Your Loan originator will explain that you will NOT be paying PMI or MIP which are monthly fees associated with loans other than VA.  WAIT!  Make sure they explain the VA FUNDING FEE which is Best explained here:

https://www.veteransunited.com/valoans/va-loan-fees-and-disability-status/

BUT THERE IS MORE!  Borrowers with at least a 10% service-related disability probably won’t have to pay it at all and that is a significant saving.

AFTER THE LOAN APPROVAL PROCESS:

OKAY– I’m approved for a VA mortgage up to ‘X’ dollars, I have found the perfect home and thanks to my Real Estate agent and my fair market offer, it was accepted. What hoops do I have to jump thru now?

1.Do I need to hire a Home Inspector? While a home inspection is NOT mandatory, it is HIGHLY RECOMMENDED for YOUR PROTECTION and if you choose not to have one, your agent will probably insist that you sign off saying that he/she recommended a home inspection.

2. One inspection that IS required is a WDO inspection.  WDO stands for Wood Destroying Organisms and most time it is referred to as a Termite report.  Your lender will require a CLEAN WDO, meaning that the house is either free from active or past evidence of wood-destroying organisms or if such a condition is detected the inspector must certify that the infestation was successfully remedied.  A VA loan can not close until a ‘clean’ WDO report is obtained.

3.       Bottom line is, Invest in a home inspection provided by a State licensed Inspector and make sure the one you hire guarantees their work.  And YES this is usually paid by the buyer.

Now what about the VA Appraisal?

Just like an appraisal for any other loan product, it will establish the fair market value for the home you are buying.  In addition to that, it evaluates VA Minimum Property Requirements (MPR) which relates to the health and safety conditions of the property.  It’s really nothing to be concerned about. Ask the VA Appraiser to elaborate.  If your Real Estate agent happens to be a VET and has been through this process herself it would be helpful.

Conclusion

There are plenty of reasons why VA loans offer an attractive prospect to veterans when buying property. Before you start applying, be sure to shop around for the best deal (the list above will help).

Also, research VA loans in further detail to understand the wider range of benefits they offer. While there are minor restrictions attached to VA loans, these are easily outweighed by the range of benefits they offer. Contact Us Anytime