Types Of VA Loan Programs Complete Guide In 2022

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The Department of Veterans Affairs offers VA loans for veterans, active duty service members, and qualifying spouses. When you qualify for one, you’ll have access to a whole host of benefits, including the ability to borrow money without making a down payment and avoid mortgage insurance.

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You can read this article to find out what types of VA loans are available to you, as well as eligibility requirements for each kind.

How Do VA Loans Work?

types of va loan programs

VA loans are issued by a financial institution such as a bank, credit union or mortgage provider and are guaranteed by the federal government – they are not directly issued by the Department of Veterans Affairs (VA). However, because they are backed by the federal government, these loans are less risky for lenders and require less of a down payment from borrowers.

For many government-backed loans, the government offers a measure of guarantee to lenders, ensuring that they will be able to recover some – if not all – of their losses if the homeowner is unable to make payments and the home is repossessed. Generally, lenders can provide applicants with more favorable terms than those offered by conventional loans or FHA loans.

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Veterans and service members receive significant financial assistance through VA loans, which are not only easier to qualify for than other loan options. As well as reinvesting the equity you possess in your home, they can also be used to finance home upgrades and renovations. Furthermore, VA loans calculate the debt-to-income ratio differently, which makes it easier for qualifying borrowers to buy bigger homes or homes with more amenities.

A VA loan requires no down payment and does not have credit score requirements, in contrast to other types of mortgages. VA loans come in several types, and each type has its own benefits and disadvantages. Your individual choice and preference will determine if you are eligible to apply for a VA loan.

Does Everyone Qualify For A VA Loan?

In order to qualify for a VA loan, you must meet certain requirements. You must meet one of the following requirements:

Active duty military members or veterans who meet certain minimum service requirements

An active-duty military spouse who died while serving in the military

Veteran or active duty member of the military who has a service-related disability

It is important to note that you need to meet the credit requirements and income requirements of your chosen lender. The VA does not set minimums. You must also intend to purchase the property with the VA loan as your primary residence, not as a vacation or investment property.

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You need a VA certificate of eligibility (COE) to qualify for a VA loan. This document verifies that you are an eligible service member or surviving spouse, which you can obtain from the Veterans Administration.

It should also be noted that not all properties are eligible for VA loans – a VA-approved appraiser will need to verify that the property meets the VA’s minimum requirements and that the value aligns with current government guidelines. VA mortgages would also be excluded from traditional Fannie Mae and Freddie Mac purchasing standards since they are non-conforming loans.

VA Loans: What Types Are There?

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Different types of VA loans come with different benefits and disadvantages. A comparison of features and options will help you decide which is right for you.

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Below are some VA loan options you may be interested in.

Purchase Loan Through The VA

Under a VA loan, a VA purchase loan is the standard form of mortgage that might be offered. Purchasers can make no down payment on a VA purchase loan. In obtaining a residential mortgage from a government agency, you will be eligible for better terms than those you would receive from a private lender. It is important to note that terms vary by lender, and not every lender offers this type of VA loan.

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An adjustable or fixed-rate mortgage is available with a VA purchase loan, just like with most types of mortgages.

Native American Direct Loans (NADLs) From The VA

Have you ever served in the military as a Native American? Are you married to someone who is Native American? If so, you may qualify for a NADL, which allows you to buy, construct, or improve a home located on federal trust property. Refinancing a current NADL loan can be used by qualified borrowers to get a lower interest rate. Exercise of this option has a variety of benefits, including no need for private mortgage insurance (PMI) and limited closing costs.

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Renovation Loan Through The VA

VA renovation loans can be used to finance the purchase and renovation of real estate, as well as other home improvement projects. This loan is designed to facilitate home improvements and repairs, just like a traditional VA loan. Few lenders, however, offer this option.

Refinance Loans For Veterans

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In addition to refinancing your mortgage, a VA loan can also be used to purchase an investment property. There are a number of types of VA loans available for refinancing.

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VA Refinance With Cash Out

You can use a VA cash-out refinance loan to get up to 100% of the equity in your home to pay for medical bills, pay off a family debt, pay for education, or whatever else you want. Unlike a conventional or FHA refinance, since VA cash-out refinances can be used for home improvements or to bolster investment and savings accounts, you can tap into more of the value in your home and enjoy greater borrowing power. Veteran borrowers can use this option as a rate-and-term refinance if desired, and it is available to both borrowers with and without existing VA loans.

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Refinance Loan To Reduce VA Interest Rates (IRRRL)

By switching to a fixed-rate mortgage, a VA IRRRL also referred to as a VA streamline refinance, can lower your monthly mortgage payments by lowering your interest rate or help you predict your regular cash outlay more accurately. A VA streamline refinances also does not require an appraisal or any additional documentation regarding your income. If borrowers are considering this option, they should take their closing costs into account.

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Factors To Consider When Choosing A VA Loan Program

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Different types of VA loans come with different advantages and disadvantages. Research which purchases or refinance option makes the most sense for your household before shopping around for a lender that offers not only favorable rates but also understands the nuances of the VA loan program.

What Are The VA Funding Fees?

Conventional loans require mortgage insurance when less than 20% of the purchase price is put down as a form of guarantee to protect lenders from the risk of default. There is, however, a VA funding fee, which runs between 1.4 and 3.6% of your loan amount (and can be paid in advance or included in your loan amount based on your down payment amount) with a VA loan.

A borrower’s individual circumstances and loan amount determine the final cost of the funding fee.

Those with disabilities due to military service may also be able to obtain a waiver that will allow them to avoid the VA funding fee. In case you have questions about your eligibility for the VA funding fee waiver, you can contact the Veterans Administration.