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DEFINITION of 'VA Loan'
A mortgage loan program established by the United States Department of Veterans Affairs to help veterans and their families obtain home financing. The Department of Veterans Affairs does not directly originate VA loans; instead, they establish the rules for those who may qualify, dictate the terms of the mortgages offered and insure VA loans against default.
BREAKING DOWN 'VA Loan'
VA loans offer up to 100% financing on the value of a home. To qualify for a VA loan, borrowers must present a certificate of eligibility, which establishes their record of military service, to the lender. VA loans, FHA loans and other loans insured by departments of the United States government are securitized by the Government National Mortgage Association (Ginnie Mae). These securities carry the guarantee against default of the United States government.
If you are stationed in the United States, you may want to consider a VA loan instead of living in base housing.
The advantages of VA loans are that they do not require a down payment and that they are easier to get than conventional loans.
In addition to this, VA loans limit the buyers closing costs. Things like escrow fees and photo inspection fees are not allowed to be paid for by the buyer. The seller can pay for these. In fact, the seller will usually agree to pay for all of the buyers closing costs (if the deal is fair to the seller).
A VA home loan is guaranteed with no money down for as much as $1,094,625.00!
Before you apply for a VA loan, you should determine if you are eligible for a VA loan.
If you are active duty and have served for 181 days (or 90 days in a war), or are the spouse of a veteran who is MIA or has died as a result of duty, or if you are former military and have been honorably discharged, you are eligible.
Conventional loans require a down payment of 5% minimum. A 20% down payment is required to avoid mortgage insurance. The VA loans do not have a mortgage insurance requirement.
VA loans also feature a special government inspection of the home to ensure you are getting a fair deal.
Another great thing about VA loans is that the interest rates are 0.5% to 1% lower than those of conventional house mortgages.
A VA loan can be used to buy a new home or existing construction. Regardless if you chose to buy a new home or an older home, you can also add energy efficient improvements (up to $6,000). The only requirement is that the improvements must save the borrower money on their electric or other utility bill.
For example, if you live in San Diego and you get a VA loan, you can install a tank-less water heater in your home. By adding the installation to the loan amount, you may be able to receive California Stat tax incentives, San Diego County tax incentives and federal tax incentives for residential energy efficiency in conjunction with your San Diego VA mortgage.
Depending on the overall property condition and land rights, you can also use your VA loan to buy a manufactured home and land.
To get more information on possible uses for your VA loan, consult with a VA Counselor before you submit your VA house loan application.
Before you apply for a VA loan you should realize that you are not automatically approved. Each VA loan has a private funder / or investors that will still require you to show an acceptable credit record (no late payments in the last 12 months) before they approve your loan application.