Different Types
of VA Loans
What Are The Different
Types of VA Loans?
Buying a new home can be an exciting yet stressful experience, whether it’s your first home, second, or even third.
When you’re taking out a mortgage loan, it can be even more complicated. Luckily for veterans and military personnel, VA loans are available. Whether making their first home purchase or refinancing their current mortgage, veterans must know the types of VA mortgages available.
VA Purchase Loans
The VA purchase loan is probably the most common type of VA loan. This loan allows veterans who meet the eligibility requirements to purchase a home without worrying about a down payment. Along with being a veteran or spouse of a veteran, the only actual requirements are that the borrower must meet the income and credit requirements and use the home as their primary residence.
The following are three common types of VA purchase loans:
- Fixed Rate Mortgage
- Adjustable Rate Mortgage (ARM)
- VA Jumbo Loan
VA Refinance Loans
Features and Advantages
of Different Types of VA Loans
-
- The interest rate is fixed for the life of the loan (whether interest rates go up or down).
- Payments generally stay the same each month.
- No money down unless the purchase price exceeds the home's assessed value.
- No private mortgage insurance is required.
- Closing costs are limited.
- VA guaranty means a competitive interest rate.
- The interest rate is adjusted periodically by adding a margin to an index specified by the mortgage (a 1-year ARM adjusts annually).
- Payments generally fluctuate along with the interest adjustment.
- ARMs limit the amount of interest adjustment that can be made in given periods and across the life of the loan.
- No money down unless the purchase price exceeds the home's assessed value.
- No private mortgage insurance is required.
- Closing costs are limited.
- A guaranty means competitive interest rates.
- This type of loan may be needed if over the standard $417,000 loan limit.
- It depends on the limit for the county – contact us for more info.
- A small down payment is required.
- Used to get equity out of your home for home improvements or other cash needs.
The streamlined VA refinance loan is a mortgage loan that allows the veteran to take advantage of lower interest rates. It is also known as an Interest Rate Reduction Refinance Loan.
VA loans are very advantageous to veterans because they not only offer lower interest rates but also allow the veteran to have lower monthly payments and possibly not have to pay closing costs.
The lender may offer to pay for the closing costs in exchange for slightly higher interest rates. The buyer may take the lower interest rates and include the closing costs in the loan.
Following are some features and advantages of VA streamline refinance loans:
- Lower the interest rate on your loan without incurring any out-of-pocket fees.
- You can use your original document of eligibility.
- Available only for existing VA Loans.
The VA cash-out refinance loan is a mortgage loan that allows veterans to take advantage of lower interest rates and get cash out of their home's equity.
The home's equity is how much the home is worth in terms of a home appraisal. For instance, if a veteran owes $80,000 on a home worth $120,000, the veteran has $40,000 in equity. The $40,000 is the amount the borrower can take out in cash.
Some lenders won't allow borrowers to take out more than 80 percent of the home's equity, while others may allow them to cash out 100 percent. Lenders may vary in their lending policies.
Veterans interested in a cash-out refinance must submit a Certificate of Eligibility to the lender.
More on VA Loans
VA Loans are only guaranteed by the U.S. Department of Veteran Affairs. Lenders make loans available to eligible veterans for the purchase, construction, or energy-saving improvement (approved by the lender and VA) of a home. VA loans also have easier eligibility requirements than conventional loans. These requirements often include lower closing costs and more liberal terms (usually no down payment is required) up to $417,000. However, in some cases, you may be able to go higher if you live in a high-cost county.
The VA Loan allows a Veteran to not only purchase a home but refinance as well. Typically a Veteran will opt to refinance their VA Loan for one of two reasons:
-
Lower their interest rate on a current VA Loan (VA Streamline Refi).
-
Lower their interest rate from a different loan type to a new VA Loan (we call this a rate in term refi). Lastly, to pull cash out of their existing home for whatever purpose they want (VA cash-out refinance).
If you are eligible, the VA will issue a certificate of eligibility that
you take to the lender when applying for your loan.
For more questions and answers about how VA Loans work, contact Jimmy at [email protected].
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