hings to Know Before Getting a VA Loan
Home loans guaranteed by the Veterans Administration are a popular benefit of military service. Here are seven things you may not know about them but definitely should.
You can’t use it for every type of real estate. You must use it to build or purchase a home for your own personal occupancy, and that home must be a house, condo or manufactured home.
There’s no PMI. Most people who purchase a home and put less than 20% down have to pay for private mortgage insurance (PMI), which protects lenders from the risk that you’ll default on your loan. Since the VA guarantees your loan, there’s no need for PMI.
You’ll pay a funding fee. This fee varies from 1.25% to 3.3% of the amount you’re borrowing. Your exact fee will depend on the size of your down payment, whether you served in the regular military or the Guard and Reserve and whether you’ve used your VA entitlement before.
You can pay the fee at closing or add it to the amount you’re borrowing. Some people are exempt, including those getting VA compensation for a service-connected disability.
There are rules regarding co-borrowers. Generally speaking, your co-borrower must be your spouse or another veteran who will live in the house. If not, you can try to pursue a joint VA loan, but many lenders don’t offer this kind of loan. With a joint VA loan, your VA guarantee amount will be reduced and the application process is longer and more complicated.
There’s no prepayment penalty. Some lenders charge you for the privilege of making extra payments toward your principal, but that’s not the case with a VA loan. By making extra payments, you can slash the total interest you pay — perhaps by even tens of thousands of dollars.
You can refinance. When you have a VA loan, it’s easy to take advantage of lower interest rates through a VA Interest Rate Reduction Refinance Loan. You can also replace your adjustable-rate mortgage (ARM) with a fixed one. It’s a streamlined process, with no need for an appraisal or income and asset verification.
It’s a perk you can use over and over. You’re free to keep taking out new VA-guaranteed loans over your lifetime. Under certain circumstances, it’s even possible to have two VA-guaranteed loans at one time, or to take out a new VA loan after you’ve been foreclosed on a previous one.