The VA Loan is a mortgage loan issued by approved lenders and guaranteed by the federal government. An earned benefit for those who served, the VA Loan allows eligible military service members and veterans to finance 100 percent of the purchase price of a home. Because of its unique advantages that include no down payment, no private mortgage insurance (PMI) and competitive interest rates, VA Loans offer those eligible a tremendous opportunity to purchase the home of their dreams. Like all home loans, the VA Loan has lots of details and information to review. We at Effective Mortgage Company encourage you to use our website as a tool to educate yourself on the specific benefits.
Background
Established after World War II to assist returning veterans purchase a home, the federal government authorized the Department of Veterans Affairs to guarantee loans made to military service members, veterans and their spouses.
Tied to the highly successful GI Bill, the VA Loan program provided veterans the opportunity to buy a home — an opportunity many veterans would not have been able to afford without the legislation.
Since its inception, the VA Loan program has helped more than 18 million veterans and their families purchase a home. The specifics of the program have evolved over time, allowing for more and more veterans to take advantage of this unique program.
Regulations
Although the VA Loan is a government program, the government generally does not make direct loans to veterans. Instead private lenders finance the loan and the Department of Veterans Affairs offers what is called a guaranty.
This guaranty, which protects the lender against loss of principal should the buyer default, provides incentive for private lenders to offer loans to those eligible.
A VA Loan can be used for a variety of home purchases, including:
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| Houses |
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| Condo /Town homes |
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| New Construction |
The VA allows purchases of up to $417,000 with no money down, but borrowers can purchase houses for more in specific counties, or with the use of a VA Jumbo Loan.
The goal of the VA Loan program is to ensure those who served have the opportunity to purchase a home should they so choose. With that goal in mind, the VA does limit the use of the VA Loan in certain situations.
Rates and Fees
Just like any other type of home loan, there are various costs associated with a VA Loan. Interest rates with VA Loans will shift and change with the market, however, it is not uncommon for interest rates for VA Loans to be lower than conventional loan rates.
With every VA Loan, there is an associated funding fee required. The funding fee is a payment made to the VA to make up for some of the taxpayer costs associated with the VA Loan.
The funding fee also varies, depending on the circumstances of the borrower. For example, if this is your first time using the VA Loan, the funding fee is typically 2.15 percent of the purchase price of the home. For subsequent use of your VA Loan benefit, the fee is 3.3 percent.
VA borrowers can roll the funding fee into their overall loan amount. The VA also limits closing costs for veterans and allows sellers to pay most or all of those expenses. Many times borrowers can purchase a home with no money or little money due at closing. Also depending on your VA status the VA funding fee can be waived.
