If you are active duty or retired from any of our military branches, be sure to consider a Veterans Administration (VA) loan when you’re ready to buy a house.
Why? VA loans have several perks, including no down payment, lower interest rates than Conventional loans, and no monthly mortgage insurance. In addition, there are no limits on the amount the veteran/serviceperson may borrow or a limit on the amount the VA will guarantee (if the person has their full entitlement).
VA loans are only available for primary residence homes. Veterans who already used their VA entitlement may still have available entitlement. The lender needs a Certificate of Eligibility to see if the borrower has remaining entitlement. The veteran can combine the remaining entitlement with a down payment for an even larger loan amount.
One aspect that is different about VA loans is that the lender must assess residual income, which is the income remaining to cover day-to-day household expenses. The net income includes, but is not limited to, all debts included in the debt-to-income ratio (DTI), childcare expenses, taxes (Federal, State, and Social Security), utilities, and maintenance. The residual income must be over a certain threshold, which takes into account the household size. Why? The VA wants to protect veterans and make sure they have sufficient funds for everyday living and emergencies.
Military homebuyers must also understand the Funding Fee, a one-time upfront cost on most VA loans paid directly to the Veterans Administration. The Funding Fee is based on the down payment, how many times you have used the VA entitlement, the kind of loan and the type of veteran you are. A veteran or serviceperson doesn't have to pay the Funding Fee in the following scenarios:
- The veteran receives VA compensation for a service-connected disability,
- Is a surviving spouse of a veteran who died from a service-connected disability, or
- Is a recipient of the Purple Heart
You can also use a VA loan for two types of refinances.
VA Interest Rate Reduction Refinance Loan (VA IRRRL):
This refinance option is specifically to refinance an existing VA loan. As long as the interest rate and payment are decreasing, no qualification is involved. You may even be able refinance the loan with “no money out of pocket” by including all costs in the new loan. You could also take out the new loan at an interest rate high enough for the lender to pay the costs. However, you cannot receive any cash from the loan proceeds. Finally, to obtain an IRRRL, you may not need an appraisal.
VA Cash-Out Refinance Loan:
This refinance option can help to pay off debts and/or receive cash proceeds. Depending on the lender, you may be able to take up 90 to 100 percent of the equity to use at your discretion.
As a member of the military, do not pass up these terrific home loan and refinance options from the VA. A local mortgage company based in Hampton Roads, we are here to help you through the nuances of the VA loan process. Give our team a call at 757-366-LOAN or contact us today.