One of the functions of the U.S. Department of Veterans Affairs (VA) is to help members of the armed forces, veterans, and eligible surviving spouses with homeownership. Of course, Live Well Financial offers this loan option, making us the lender in a VA loan transaction. The VA is involved by providing a home loan guaranty to help such veterans finance a home for personal occupancy.
In essence, the VA guarantees a portion of the loan, enabling us, the lender, to provide the veteran with more favorable terms and rates when compared to other comparable financing options.
What are the advantages?
One key advantage of VA lending is that VA loans have no private mortgage insurance or mortgage insurance premiums. This may save the veteran thousands of dollars in payments each year. A one-time funding fee will be applied upfront, but it is generally financed into the loan amount.
VA loans also offer up to 100% financing, which means “no money down” as long as sales price does not exceed the appraised value. In fact, with the funding fee added in, the loan amount can exceed 100% loan-to-value. This keeps more money in the borrower’s pocket.
How does the VA guaranty work?
Essentially, the guaranty protects the lender against loss for non-payment, and up to 25% of the base loan amount is guaranteed. This means that we can offer a loan at 100% financing with similar terms and risk comparable to a 75% loan-to-value loan.
Types of VA loans
- Purchase loans help the veteran obtain a home at a competitive interest rate without requiring a down payment or mortgage insurance.
- Refinance loans allow the veteran to cash out some of their home equity for debt repayment, funding education, or home improvement.
- Interest Rate Reduction Refinance Loans (IRRRLs) are streamline refinances designed to help the veteran lower their existing VA loan interest rate.
VA-guaranteed loans are available for homes for the veteran or a spouse and/or a dependent for active duty service members to occupy. Even some surviving spouses are eligible.
To be eligible, the borrower must have acceptable credit and sufficient income to meet expected monthly obligations. They must also have a Certificate of Eligibility (COE), which validates that the borrower is eligible for a VA-backed loan.
Lastly, some borrowers – specifically disabled veterans – will not have to pay a funding fee. In those cases, their Certificate of Eligibility should state that they are “exempt.”