With their excellent blend of lenient underwriting, competitive interest rates, favorable terms, and secondary benefits, the home loans offered as part of the U.S. Department of Veterans Affairs’ home loan program (also known as VA loans) have long been considered an appealing option for eligible homebuyers. For some, the changes made by Blue Water Navy Vietnam Veterans Act of 2019 have made a great thing even better. How do VA loans work?
How Do VA Loans Work?
To understand how a VA loan works, you need to know the answers to some basic questions: Who is eligible for a VA loan? What can you use it for? Are there limits on how much you can borrow? How do you get a VA loan?
VA Loan Eligibility
VA loans are a benefit of service. As such, they’re available to active duty service members and veterans who meet the service requirements. In some cases, surviving spouses may also be eligible. However, being eligible for a VA loan isn’t a guarantee that you’ll get one, according to The Mortgage Reports. In addition to eligibility for the program, you’ll also need to have the credit and income necessary to secure the loan that you’re seeking. While excellent credit can help you get the best interest rate, don’t panic if your credit isn’t perfect. The underwriting requirements for VA loans are more relaxed than many other loan programs.
Acceptable Uses for a VA Loan
VA loans are intended to help those who have served their country become homeowners, so they can only be used to purchase a primary residence. If you’re interested in purchasing a vacation home or commercial property, you’ll need to look for other financing. In addition, any property being purchased with a VA loan has to go through the VA’s appraisal process and meet its Minimum Property Requirements. However, as the VA explains, there are still plenty of ways that you can use a VA loan:
- Buy a home.
- Buy a condo in a VA-approved unit.
- Buy a manufactured home.
- Buy a fixer-upper and renovate it.
- Build a home.
- Refinance an existing loan.
VA Loan Limits
How much can you borrow with a VA loan? That depends on a variety of factors, including your own financial situation. After all, you must have the credit and income necessary to qualify for the loan. However, the Blue Water Navy Vietnam Veterans Act of 2019 has had a sizable impact on the potential size of VA loans. In the past, borrowers using a VA loan that didn’t want to make a down payment had to stay below the VA loan limits, which generally matched the ones set by the Federal Housing Finance Agency on conforming loans. That’s because the VA would only offer a guaranty up to that limit. Thanks to the new legislation, the limits are removed for borrowers with full entitlement. However, this isn’t a blank check. While no down payment will be required to snag a larger loan, you’ll still need suitable credit and income.
Getting a VA Loan
The VA may set the standards for VA loans, but as Investopedia points out, it doesn’t actually make them. Instead, it guarantees a portion of the VA loan. This promise reduces the risk lenders take in extending these loans and enables them to offer favorable terms to the borrowers who use them. Since private lenders make the actual loans, you’ll need to find a VA-approved lender that you feel comfortable dealing with and apply if you hope to use a VA loan to fund your home purchase. However, it’s important to remember that some lenders have more experience with the VA loan program than others. Choosing a lender who thoroughly understands how VA loans work and the ins and outs of the program will help you take full advantage of your benefits and provide a smoother experience.
Could a VA loan help you achieve your housing goals? How do VA loans work for someone in your situation? At PrimeLending of Denver, we offer the kind of personalized service and expert advice that you need to get the most out of your housing benefits. Plus, as a thank you for our freedom, we do not charge our veterans any lender fees. With our commitment to transparency, deep knowledge of the local markets, and efficient use of cutting-edge technology, we’re ready to help you take action. Contact us today to explore the possibilities.