A VA-guaranteed loan is a loan made by private lenders (such as banks, savings & loans, or mortgage companies) to eligible veterans. These loans are for eligible service-members and veterans, and carry a number of benefits (such as no down payment) that make them far more appealing than conventional loans in most cases.
VA Loan Limits for 2018
If you want to purchase a home, condominium or manufactured home, the VA can guarantee up to $453,100 of the total loan – with additional benefits such as no down payment and no private mortgage insurance (PMI). The limit varies each year, and can be higher in counties where the median home value is greater.
If you are considering refinancing an existing loan, VA offers you two options. You can either refinance to reduce your current interest rate (known as a “streamline loan” or “Interest Rate Reduction Refinancing Loan (IRRRL)” or you can take equity out (a “cash-out” loan). You can obtain a VA cash out loan for up to 100 percent of your home’s value, plus the VA loan funding fee, if applicable.
Benefits of a VA Loan
The biggest benefit of a VA loan, for many borrowers, is that there is no need to worry a down payment - the portion of the home purchase price which the buyer pays in cash and does not finance. For conventional loans, most buyers are given a choice of paying 20 percent of the property value as a down payment, paying Private Mortgage Insurance (PMI), or arranging a complicated second “piggyback” mortgage to cover the down payment.
However, certain funding fees (the percentage of total home loan paid to the VA at time of loan closing) and closing costs (expenses over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property apply, and you must be able pay a portion of these fees upfront.
Another big benefit is that, with a VA-guaranteed home loan, you get a mortgage with a competitive interest rate.
Made Possible by VA Guarantees
The zero-down and competitive interest rate benefits are made possible because VA loans are partially guaranteed by the VA - the lender you borrow money from is protected against loss up to the amount of the guarantee if you fail to repay the loan, giving our veterans and service members flexibility to purchase a great home.
What Can You Do With a VA Loan?
Specifically, a VA home loan can help veterans:
- Buy a home or residential condominium
- Build a home
- Repair, alter or improve a home
- Refinance an existing home loan
- Buy a manufactured home with or without a lot
- Buy and improve a manufactured home lot
- Install a solar heating or cooling system or other weatherization improvements
- Add energy-efficient improvements to a home
- Purchase and improve a home simultaneously with energy efficient improvements
- Refinance an existing VA loan to reduce the interest rate
- Refinance a manufactured home loan to acquire a lot
There are other VA Home Loan Safeguards:
- The VA may suspend lenders from the loan program those who take unfair advantage of veteran borrowers, or decline to sell a new home or make a loan to an eligible veteran of good credit because of race, color, religion, sex, disability, family status or national origin.
- The builder of a new home is required to give the purchasing veteran a one-year warranty that the home has been constructed to VA-approved plans and specifications. A similar warranty must be given for new manufactured homes.
- In cases of new construction completed under VA or HUD inspection, the VA may pay or otherwise compensate the veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home loan guaranty.
- The borrower obtaining a VA loan may only be charged the fees and other charges prescribed by VA as allowable.
- The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100.
- The VA encourages holders (lenders) to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.
See if You Qualify Now
For many, the choice of a VA loan over a conventional mortgage or paying rent to a landlord is a no-brainer. See if you qualify now – there are no obligations and you’ll get several quotes from competing lenders.