How Do VA Loans Work
Purchasing a home is probably the biggest financial decision you’ll ever have to make. If you’re a veteran, you can apply for a VA loan to buy an existing home, construct your own house or purchase a condominium or townhouse.
What’s more, VA loans can also be used for making home improvements such as installing storm windows, insulation and other features that promote energy efficiency. Here’s how VA loans work, along with some of their benefits.
Who Qualifies for a VA Loan?
Besides veterans, VA loans are also for people who are currently serving in the United States military, along with their spouses. However, there are some qualifications need to be fulfilled.
For example, anyone interested in buying a home must have served for at least 181 days during peacetime or must have completed 90 days of active service during times of war. Another requirement is having a record of six years of service in the National Guard or the Reserves.
Advantages of VA Loans
VA loans offer several benefits. One of the main perks is that you don’t need to put down any money as you would have to do when getting a conventional loan. This makes buying a home easier for people who’ve served their country.
Also, you don’t have to pay a monthly fee for PMI or private mortgage insurance, which saves you a considerable amount of money. Consider that with a conventional loan, you could have monthly payments that are as high as $65 for the first three to five years.
Another advantage is that you have less closing costs. VA loans have interest rates that are very competitive. In fact, the rates for VA loans are almost always lower than those of conventional loans. Also, if you pay off your loan early, you don’t have to pay a penalty.
What’s Involved in the Loan Process
- First, obtain a copy of your credit report through Experian, TransUnion or Equifax, which are the three main credit bureaus.
- Next, find a lender, comparing the various closing costs. Apply at approved financial institutions and banks that offer home financing through VA loans.
- The next step is to pre-qualify for your loan as this helps in determining how much you can borrow, as well as gives a lender details, regarding your assets and income. Although pre-qualifying for a loan isn’t required, it’s a good idea because you’ll need to know what you can afford when searching a home.
- Search for your home. This can be done by using a realtor or other means such as real estate ads in newspapers or online sources.
- Draw up a purchasing contract, which outlines the specific conditions and terms regarding a real estate transfer. A purchasing contract will also include important data on easements, restricts, property liens, and other items.
- Ask the Veterans Administration for an appraisal; the amount of your loan should not be more than what the VA estimate of a property’s value. This is needed for a loan to be finalized.
- Finally, go to the loan closing where you’ll need to sign the loan note, mortgage, and other papers.
Considerations and Warnings
- You’ll need to pay a fee for VA funding if this is your first VA loan. However, it’s not that much as it’s just 1.5 percent of the amount of your loan. This can be paid at the time of your closing, provided you pay a somewhat higher rate.
- Your loan may not cover lender closing expenses. These costs, which are paid by either the seller or the buyer, usually include those such as recording fees, title insurance, a credit report, discount points and a loan origination fee.
Let the mortgage professionals at Pacific Mortgage Group answer any questions you may have. For more information about obtaining a VA loan, please contact us.