A VA loan can help eligible veterans purchase the home of their dreams, but they come with a few conditions a buyer should understand.
If you’re a veteran shopping for a home, a VA loan can be an incredible way to help you purchase your dream home. But it’s important to understand what these loans are, how they differ from traditional loans, and what some of their unique advantages and drawbacks are.
What is a VA loan?
A VA loan is not a loan from the Veterans Administration (VA) but rather guaranteed by the VA. This means the VA backs the loans issued by local credit unions, banks, and mortgage companies should the borrower default on it.
VA loans are a benefit provided to those with military service, making it easier to qualify for than a typical mortgage and without requiring a down payment or mortgage insurance. The function of these loans is to make it easier for military members, veterans, and military spouses to buy or refinance a home.
Determining if a VA loan is the best fit for you depends on your unique financial circumstance as well as the type of property you want to buy. Knowing a few key facts about these loans can help you set your expectations and make the most informed decision when buying a new home.
Surprising VA Loan Facts You Need to Know
- VA loans come in all shapes and sizes. Just as you would shop for a traditional mortgage, you can choose VA loans of all types, including long-term fixed or adjustable-rate. You can also use one to refinance your existing home.
- Not every property is eligible. For example, VA loans must be used to purchase primary residences and cannot be used for co-op purchases or vacant land. However, vacant land may be included in a VA loan if it is paired with a new-construction loan.
- There is a funding fee. This fee is based on the type of loan and total amount borrowed and covers the cost of obtaining a VA loan. The higher your down payment, the lower your fee. You can find a va.gov chart showing funding fee rates based on your down payment here.
- There is no monthly mortgage insurance. For many borrowers with less than 20% down payments, the lender charges a monthly fee to insure the loan, but in this case, VA loans do not because the funding fee covers this. This means you can afford more home for the same monthly payment.
- The VA loan benefit changes with each use. Borrowers may use VA loans more than once, but after their first time on a VA guaranteed loan, the associated funding fee will increase.
- Future buyers can assume your loan. If a future buyer is also VA-eligible, they can assume, or take over, your loan at the same rate, which can be an advantage particularly if interest rates have climbed since the original buyer secured their loan.
- There are no prepayment penalties. Some banks penalize borrowers with traditional mortgages for paying off their mortgage early. With a VA loan, you can make extra payments over the life of the loan without penalty, paying it off sooner and saving you thousands of dollars in interest.
At Eagle Home Mortgage, we know mortgages aren’t one size fits all. If you’re a veteran or active-duty military looking to purchase a home from the Lennar family of builders, we can help you get started with your application process today.