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What is a VA loan?

What is a VA loan?

 VA Home Loans

VA home loans were first offered in 1944 when they were introduced through the original GI Bill. This type of mortgage is provided to service members and military families meeting the eligibility requirements.

You qualify for this program as long as you meet one of the following criteria:

  • Wartime: 90 days of active service (consecutive)
  • Peacetime: 181 days of active service (consecutive)
  • Reserves/National Guard: Six years of service
  • Surviving spouse of a military member killed during active duty or who died due to a service-connected disability

How Do VA Home Loans Work

You don’t take out a mortgage directly from the Department of Veterans Affairs with a VA home loan. Instead, the VA backs the mortgage lender’s loan with a partial guarantee. You would work with a financial institution or a mortgage broker to get the loan. If you would be unable to pay it back, the lender receives the guaranteed funds. This configuration allows lenders to lower their risk, which makes them more flexible on the terms and qualifications. For example, many borrows have credit scores of 620, which could be too low to get approved with a conventional lender.

The Benefits of VA Home Loans

Many home mortgages cost less than the rental price of comparable properties, but the down payment is a barrier to entry that some families can’t overcome. You don’t have to worry about that with a VA loan, as you don’t need to pay a down payment with this program. The interest rates are also an average of 0.5 percent to 1 percent lower than the conventional mortgage rate.

The typical conventional mortgage adds private mortgage insurance onto your monthly payment when you have less than a 20 percent down payment invested in the property. VA loans do not have mortgage insurance. A 2.15 percent funding fee is required, but you can add this amount to the total mortgage so you don’t have to pay it upfront.

The seller has the option of paying your closing costs along with 4 percent of the purchase price for concessions. You can also use gift funds to pay for these fees, as long as you have documentation that shows the money does not come from someone involved in the purchase.

Another interesting characteristic of VA home loans is that someone else can assume them. If you wanted to transfer the mortgage to another person, VA loans are assumable. The lender has to approve this process, and it works out best if you find another VA qualified person to take it over.

The Limitations of VA Home Loans

Each county has a VA loan limit that dictates how much you can take out in a mortgage before you have to add a down payment to the equation. The VA sets this maximum at the local level to account for the individual real estate market and cost of homes. The typical limit is $453,100.

This type of mortgage is used for a primary residence, not a secondary or vacation home. You need to live in the house full-time and they expect you to move in within 60 days.

VA home loans give you a no down payment, a low-interest alternative to conventional loans. This program has a lot of flexibility and can help you get into real estate in Colorado Springs faster than saving up for the expenses associated with a conventional loan.

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