The United States Department of Veterans Affairs partners with several lenders to provide low-cost home loans to the qualified veterans. Along with the retired and active members of US armed services, the VA mortgage loan facility can also be availed by the family members of deceased veterans. Many qualified veterans avail the benefits of such loans to buy or refinance residential property at affordable VA mortgage rates. If you are planning to apply for a VA mortgage loan, it becomes essential to understand some of its key features that distinguish it from other forms of credit.
No Down Payment: Normally, a borrower has to make a down payment to have some equity on the newly purchased home. The amount is often used by the lender to recover the money, if you fail to pay EMIs or opt for loan foreclosure. But the VA mortgage loan can be availed by the members of armed services without making any down payment. The VA will guarantee a loan to cover a part of lender’s losses. The guarantee offers several benefits of a home insurance plan to the borrowers.
No Typical Costs: While availing a normal mortgage loan, the borrower has to pay certain fees. For instance, many lenders require borrowers to pay additional fees towards loan appraisal, recording and prepaid taxes. However, you can get a VA mortgage loan without paying any such fees. You have to pay certain amount as VA funding fee that will be used to compensate the lender in case of loan default or foreclosure. You can further save more money by convincing the seller to pay closing costs for you up to an amount that does not exceed 4 per cent of the original loan amount.
Single Family Housing Limits Set by VA: Similar to other loans, the amount of a VA mortgage loan is also determined based on the income and debt level of the borrower. As you cannot pay an EMI that exceeds your monthly income, the VA has set single family housing limits. The limit vary from one state to another, and the VA normally guaranteed mortgage loans up to 25 per cent of the single family housing limit of your country. Irrespective of the amount of loan granted by the lender, the VA home loan guarantee will remain unchanged based on your location.
Option to Use the Funds: After receiving the mortgage loan amount from the lender, many borrowers use the funds to purchase residential property. However, you can use the VA guarantee for the straight as well as cash-out refinance loans. When you are using the loan amount to buy a new house, you can convince the seller to pay the termite inspection fees. But a buyer has to pay to cover the inspection expenses, in case of normal loan programs. Also, the VA-backed loans can be used to refinance your primary residence. In case you sell the property, the buyer can assume the mortgage repayment, if he is eligible for a VA-backed mortgage loan.