What is a VA Loan
VA Loans are guaranteed by the US Department of Veterans Affairs, although they can be issued by a variety of qualified lenders. It all started as a way to help American veterans to purchase a home of their own if they were otherwise ineligible to do so. Very often they can arrange for a no money down loan for the American veteran or their surviving spouse (as long as the spouse doesn’t remarry). VA loans have meant that more than 18 million members of the military have been able to buy their own homes, since it’s inception by Congress in 1944.
How VA Loans Work
The VA doesn’t actually issue the loans, it simply guarantees to repay approximately 25% of the guaranteed loan in the unlikely event that the borrower defaults on the payments. What a great idea! This reduced risk means that the lenders can very often offer more competitive rates than would ordinarily be available, so it’s a win-win situation all round.
Benefits of a VA Loan
- No money down loans available – where else can you find affordable 100% mortgage offers these days – exactly . . .
- Competitive interest rates, very often lower than the conventional rates on offer.
- There are no penalties if you prepay your loan.
- Very often the debt-to-income ratio is higher than for other loans.
Who Can Have a VA Loan
Not everybody can have one, you’ve got to have served in the military for starters. Remarkably, there are more than 25 million veterans who are eligible for a VA loan, but less than 10% have taken advantage of the offer. Some people assume that they’re not eligible because they’re no longer in active service, some don’t know anything about it and some just don’t know how to go about it. You can have a VA Loan if:
- You have served in the military on active duty for a minimum of 181 days, or if you’ve been in a war zone for three months.
- You’ve spent a minimum of 6 years in the Reserves or National Guards.
- Your spouse was killed in the line of duty (and you have not re-married).
However, do bear in mind that just because you’re eligible for a VA loan, it doesn’t mean that you can automatically have one!
What Can You Do with a VA Loan
The idea of a VA loan is to buy or build a single family home, but if you’ve already got a home then you might be able to get a VA loan to do a spot of upgrading or for some other reason:
- Release some of the cash from your home by refinancing
- Refinance with a VA loan to take advantage of a lower interest rate
- Repair, improve or alter an existing home
- Make energy efficiency improvements to your existing home
- Purchase a condo (single family of course)
- Purchase a farm (which must be occupied by and owned by the qualifying veteran)
- Buy a modular home
Investment properties are a big no-no. The idea of a VA loan is not to set you up in some entrepreneurial venture, just simply to provide you and your family with your own home.