What Is a VA Loan?
A VA loan is a mortgage loan available through a program established by the United States Department of Veterans Affairs. VA loans assist service members, veterans and eligible surviving spouses to become homeowners. The VA sets the qualifying standards, dictates the terms of the mortgages offered and guarantees a portion of the loan. VA home loans are provided by private lenders, such as banks and mortgage companies.
How a VA Loan Works
The Veterans Administration offers a home loan guaranty benefit and other housing-related programs to help qualified veterans or their eligible surviving spouses buy, build, repair, retain or adapt a home for personal occupancy. VA loans offer up to 100% financing on the value of a home. VA loan recipients do not have to be first-time home buyers. Also, they may reuse the benefits and assign the loan to another qualifying person.
Terms of VA loans include several benefits.
- No down payment is mandated unless required by the lender, or if the purchase price is above the established property value.
- There is no private mortgage insurance premium requirement.
- Closing costs are limited and may be paid by the seller.
- The lender may not charge a prepayment penalty.
- Assistance is available from the VA to help borrowers avoid default.
- Many states offer additional benefits to veterans, such as property tax reductions.
VA loans assist service members, veterans and eligible surviving spouses to become homeowners, offering up to 100% financing on the value of a home.
Types of VA Loans
VA loans, FHA loans and other loans insured by departments of the United States government have securitization through the Government National Mortgage Association (GNMA), which is also known as Ginnie Mae. These securities carry the guarantee against default of the United States government.
The VA offers several types of mortgage loans to help veterans and their families.
- VA home purchase loans help veterans to buy a home at a competitive interest rate. Often these purchase loans do not require a down payment or private mortgage insurance.
- Cash-out refinance loans allow mortgage holders who are veterans to borrow against home equity to pay off debt, fund school or make home improvements. This refinancing option offers a new mortgage for a larger amount than the existing note and converts home equity into cash.
- Interest rate reduction refinance loans (IRRRLs), also known as streamline refinance loans, help borrowers obtain a lower interest rate by refinancing an existing VA loan. This is a VA-loan-to-VA-loan process that allows homeowners to refinance a fixed loan at a lower interest rate or convert an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.
- The Native American Direct Loan Program helps eligible Native American veterans finance the purchase, construction or improvement of homes on federal trust land. Reductions in interest rates also come with these loans.
- Adapted housing grants help veterans with a permanent and total service-connected disability to purchase or build an adapted home or modify an existing home for their disability.