One of the benefits offered to military members and Veterans is the VA loan, and you may be eligible for it. A VA loan is designed to help those who have served the country purchase a home with favorable loan terms.

If you have served in the US Military and are preparing to buy a home, we have 10 things you need to know about the VA loan.

1. Who is eligible for a VA loan

A VA loan is offered to military members and Veterans who meet certain guidelines, including credit score and income, which allow them to obtain a Certificate of Eligibility (COE).

2. No down payment is required for a VA loan

A VA loan is available for up to 100% of the purchase price. This means you can opt to make no down payment at all, allowing you to keep more cash on hand for renovations, furnishing, emergency funds, or other expenses. This is one of the most unique criteria of a VA loan.

3. The VA loan is government-insured

The VA loan is available with looser restrictions because the Department of Veteran’s Affairs (VA) insures a portion of the loan will be paid back to the lender if the buyer were to default. The government does not contribute any money toward the purchase, but provides assurance that the loan will be paid even if the buyer does not continue making payments. Government backing gives lenders the confidence to extend financing with excellent rates and terms.

4. VA loans have no Private Mortgage Insurance (PMI)

In most cases, a lender will require you to may a monthly private mortgage insurance (PMI) premium if you make less than a 20% down payment. With a VA loan, however, you do not have to pay any PMI.

5. The VA Funding Fee

One unique cost associated with a VA loan is the Funding Fee. It is a mandatory fee applied to all VA loans to cover any losses from a potential default. The Funding Fee can be paid upfront or financed, and is calculated as a percentage, which is determined based on whether you have used a VA loan before, the size of your down payment, and whether you are purchasing or refinancing.

6. A VA appraisal is required

In order to purchase a home with a VA loan, a VA appraisal will be required. An independent VA-certified appraiser will inspect the home, evaluate comparable properties in the area, and then make a value assessment. The appraisal is separate from a home inspection, and generally costs between $300 and $500. In order to ensure that you are paying a fair price for the home you plan to purchase, an appraisal is necessary.

7. Closing costs can be covered by the seller

Some loan options won’t allow closing cost assistance, meaning the buyer would be responsible for all closing costs upfront. Other loans allow the seller to pay a portion of the closing costs. The VA loan allows sellers to pay up to 100% of the closing costs, including up to two discount points to buy down your interest rate. This is, of course, dependent on negotiations with the seller, but the loan is designed to allow maximum flexibility in this area.

8. VA loans must be used for a primary residence

The VA loan is designed to help those who have served in the US military own their home. It is not meant to be used for income properties or vacation homes, so the terms stipulate that the VA loan must only be used for your primary residence.

9. There is no prepayment penalty

In some cases, mortgage terms specify a prepayment penalty. If you choose to pay more than your monthly payment on your VA loan, however, there will be no prepayment penalty.

10. You can reuse your VA loan

After you have completely paid off your first VA loan, you will regain your full eligibility and are allowed to use it again on another property. This benefit is designed to be an asset for your future to use multiple times, if you desire.

For more information about applying for a VA loan, contact us anytime. We have a team of loan officers who are ready to help.

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