VA Loans: Mortgage Loans guaranteed by Veterans Affairs
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A lender, such as a mortgage company, savings and loan, or bank, makes a Department of Veteran’s Affairs-guaranteed loan . The VA's stamp of approval on the loan protects the lender against loss if the payments are not made. This encourages lenders to offer veterans loans with more favorable terms.
The amount of guaranty on the loan depends on the loan amount and whether the veteran has had a previous VA loan.
Advantages of VA Financing
More than 29 million veterans and service personnel are eligible for VA financing. If you are a veteran you can get a VA loan more than once-if you didn't exhaust your loan limit or if you have had it restored.
VA Loans have advantages:
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No down payment required--reducing the origination cost of the loan.
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The loan maximum may be up to 100 percent of the VA-established reasonable value of the property.
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You have flexibility in negotiating interest rates with the lender.
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There is no monthly mortgage-insurance premium (private mortgage insurance, or PMI).
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There is a limit on the buyer's closing costs.
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The buyer receives an appraisal that shows the property value.
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30-year loans have a choice of repayment plans:
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Traditional fixed-payment: constant principal and interest; increases or decreases may be expected in property taxes and homeowner's insurance coverage
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Graduated-payment mortgage (GPM): low initial payments that gradually rise to a level payment starting in the sixth year
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Growing equity mortgages (GEMs) have gradually increasing payments with all of the increase applied to the principal, resulting in an early payoff of the loan.
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For most loans for new houses, construction is inspected at appropriate stages to ensure compliance with the approved plans, and a one-year warranty is required from the builder that the house is built in conformity with the approved plans and specifications. In those cases where the builder provides an acceptable 10-year warranty plan, only a final inspection may be required.
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The mortgage is assumable, subject to VA approval of the assumer's credit.
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No pre-payment penalty.
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The VA performs personal loan servicing and offers financial counseling to help veterans avoid losing their homes during temporary financial difficulties.
The only disadvantage is that the inspection and warranty requirements are cumbersome to the realtor and seller (some sellers shy away from buyers with VA loans).