VA loans continue to provide the best financing option for those that qualify. Buyers who want a low-closing cost loan with competitive interest rates need to look no further than the VA loan program. VA loans are part of the original G.I. Bill introduced way back in 1944. The G.I. Bill provided benefits to those who fought in WWII such as education benefits and job training. It was with this program that also inserted the VA home loan program.
Available in both fixed and adjustable rate programs the VA loan is perfect for those who qualify. But there may be a few surprising facts about VA loans you’ve not yet heard of. One of them is who is eligible for this zero down program.
VA loans are available for veterans, that’s pretty much of a given. But one doesn’t have to be a veteran to gain eligibility. Active duty personnel are eligible as well. As long as there is at least 181 days of service, active duty can apply for a VA loan. While those newly enlisted who anticipate a transfer at some point, ideally it’s for those who have been in the service for several years and don’t anticipate a Permanent Change of Station, or PCS, anytime soon.
Also eligible for the program are those who have served or are currently serving in the National Guard or Armed Forces Reserves with at least six years of service. Unremarried surviving spouses of those who have died while in service or as a result of a service-related injury.
Another interesting fact is the VA loan isn’t a one-time exchange. The VA loan entitlement is the only way a lender can validate eligibility for this special program. This verification is provided by way of a copy of the Certificate of Eligibility obtained directly from the Department of Veteran’s Affairs. But the borrower can use the same program later on as long as the entitlement was restored. Entitlement restoration is accomplished by paying off the old VA mortgage either with the sale of the property or refinancing out of the VA loan and into another type.
VA loans don’t require monthly mortgage insurance. Normally when there is a low down payment with most any loan, mortgage insurance is required in the form of two separate insurance policies. There is an upfront policy that is rolled into the final loan amount and an annual premium that is paid in monthly installments. This additional monthly payment lowers the borrowers borrowing power. The installment payment is counted as debt just as with other monthly obligations. The VA loan does have a form of mortgage insurance called the Funding Fee but that too is rolled into the loan amount and not paid for out of pocket. On a side note, it should be pointed out that even though there is no down payment the VA loan is one of the highest performing mortgages in today’s market.
Finally, VA loans carry an assumption clause. This means someone can assume an existing mortgage from someone carrying a VA loan. The person assuming an existing VA loan must still be able to qualify based upon income, credit and the like but the fact is it can be legally transferred from the current owner to the new buyer. This wasn’t always the case as there were very few qualification guidelines when assuming a VA loan.
Why would someone want to assume an existing loan instead of applying for a new one? There can be several reasons but if the terms on the existing VA mortgage are more attractive than what’s currently available then assuming existing loan can be a good idea. The buyers will pay an assumption fee but otherwise closing costs are roughly the same compared to getting a new mortgage.
Also, the VA doesn’t get involved with any part of the approval process. Many years ago that wasn’t the case and eligible borrowers had to work directly with the VA. As you might imagine this slowed the approval process way down compared to getting a conventional mortgage and working directly with the mortgage company. Today, none of that is the case. As long as the lender is approved to originate, process and fund VA loans, the mortgage company handles the entire process, including the appraisal.
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