The United States Department of Veterans Affairs (VA) backs a handful of different types of home loans. If you’re looking to buy a new home, remodel your current one or refinance an existing mortgage and you’re an eligible veteran, active-duty service member or surviving spouse, you may want to look into a VA loan. But how do you know which one will work for you?
Learn more about the loans that the VA backs to decide which one is right for your personal situation.
Types of Loans
There are several types of loans that the VA backs for eligible VA borrowers. Learn more about them below.
Purchase Loan
Found your dream home or are ready to buy a second one? A purchase loan from the VA can help you buy, build or improve a home. This type of VA loan is standard and likely one of the most commonly issued by the VA. VA purchase loans often have more competitive terms and more reasonable requirements than other types of purchase loans, and you could choose between an adjustable-rate mortgage (ARM) or a fixed-rate mortgage.
Cash-Out Refinance Loan
Do you already have a mortgage and have built equity in your home? You may be able to tap into it with a VA cash-out refinance loan. Depending on your situation, you could even use up to 100 percent of your home’s equity. A VA cash-out refinance replaces your current mortgage with a new, larger one with different terms. You’d then receive the difference in cash in one lump sum at closing.
Many borrowers use the cash from this type of loan for debt consolidation, home remodeling (which may increase your home’s value), major purchases, funding for higher education and more.
Interest Rate Reduction Refinance Loan (IRRRL)
A VA IRRRL, also known as a VA streamline refinance, allows borrowers who already have a VA loan to refinance for different, more favorable terms. If interest rates have gone down since you secured your original loan, you may want to refinance to save on interest and lower your monthly payments. If you have an ARM and want more predictable monthly payments, you could refinance to a fixed-rate mortgage to help you budget better.
The biggest advantage of a VA IRRRL is less paperwork and documentation, ideally making the loan process quicker.
Native American Direct Loan (NADL) Program
The NADL Program is available to eligible veterans, active-duty service members and surviving spouses if one of them is Native American. This program would allow you to buy, build or renovate a home as long as it’s on federal trust land. You may also use it to refinance an already existing NADL. Keep in mind that your tribal government must have a Memorandum of Understanding (MOU).
Advantages of VA Loans
Why might you want to choose a VA loan over other traditional mortgages? VA loans provide some specific advantages.
Down Payment
In most cases, a down payment isn’t required. Many VA loans provide up to 100 percent financing, helping you to mitigate upfront costs and budget accordingly.
Interest Rate
Depending on your lender, interest rates on VA loans are typically lower than other types of loans, such as conventional loans. These would help lower your monthly payment, making your mortgage more affordable.
Private Mortgage Insurance (PMI)
Even if you don’t have a 20 percent down payment, you won’t have to pay private mortgage insurance on VA loans.
Requirements
VA loans have requirements that can apply to more borrowers. A lower credit score requirement, for example, could help more borrowers get approved for a VA loan.
What to Keep in Mind
As you’re shopping for a VA loan, there are a couple things you should consider and prepare for during the process.
Certificate of Eligibility (COE)
A COE is a type of document from the Department of Veterans Affairs that verifies your status as a qualified veteran, active-duty service member or surviving spouse. In many cases, your lender can request it directly.
Entitlement
Your entitlement is how much the VA will guarantee on your loan. This will help you understand how much you can borrow before you need to make a down payment.
VA Funding Fee
Since a down payment and PMI aren’t required, the VA requires a funding fee on all VA loans. This is a fee set by the government and is based on the type of loan and is a set percentage of the loan amount. You may be able to roll this fee into your loan amount or pay it upfront.
Work with the Professionals
Securing a VA loan shouldn’t have to be difficult when you work with a reputable VA loan lender. They’ll be able to help you decide on the loan that’s right for you, guide you through the process and solve any roadblocks that may come your way.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
