There are three main types of home loans, Conventional, FHA, and VA. While they all have their purposes and advantages, the loan that would best benefit the borrower varies on a borrower’s specific situation.
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veteran Affairs. VA Loans can be used by almost all members of the military, veterans, reservists, and members of the National Guard.
Widows and widowers of military members who passed away while on active duty or as a result of a service-related injury can also apply. While active members can qualify after six months of service, reservists and National Guard members have to wait at least six years to apply.
VA Loans are notoriously easier to obtain for members of the military than most traditional loan programs. There is no down payment needed, a lower credit score allowance, and no required private mortgage insurance.
Although a down payment is optional, there is a one-time VA loan funding fee, which depends on the type of veteran (Active military or Reserve/National Guard) applying for the loan and if they decide to put money towards a down payment. Active military members with no down payment typically pay a funding fee of 2.15% of their loan amount.
With 10% down, active military pay a funding fee of 1.25%. Non-active members add about a quarter of a percentage their fees. Those using the VA Loan program for a second time pay a fee of up to 3.30%. Veterans with disability benefits are exempt from any funding fees.
The credit score requirement is a lot more lenient for veterans. Most lenders ask for a credit score of at least 620, but the credit score limit is at the lender’s discretion. DTI limits are also more flexible than conventional loans programs. But unlike conventional loans, you cannot use a VA loan for a secondary home or investment property. They may only be used for purchasing and refinancing primary homes.
Like conventional and other government loans, limits on VA loans vary by county. For a qualified veteran with full entitlement, the loan limit is commonly $424,100. In the high cost areas in the Continental U.S., the loan limit is $636,150. For qualified active members, Basic Housing Allowance (or BAH) is an added benefit and can be used as effective income. Your monthly mortgage can be paid using your BAH.
The interest rates for VA Loans are also typically lower than other loan programs. You’re also free to pay off your loan early with no prepayment penalties. Alternatively, if you aren’t able to pay your monthly mortgage payment, the VA can negotiate with the lender on behalf of the borrower as part of their foreclosure avoidance advocacy program.
If you’re interested in a VA loan and have found the house you want to call home, contact Bluefire Mortgage and get pre-approved; offers that include a pre-approval have a better chance of being accepted. Call us today at (760) 930-0569.