A homebuyer benefits greatly from VA or Veterans Affairs loans. With little to no down payment, lower credit score thresholds for applicants, and competitive interest rates, a VA loan offers financial security even while making a significant payment like a mortgage. Furthermore, this type of loan potentially has lower auxiliary and closing costs and no private mortgage insurance requirements, which shaves off a significant portion of your additional fees.
To avail of this type of loan, you must be an active duty service member, a current or discharged member of the National Guard or Selected Reserve, or a veteran in good standing. Spouses of veterans who died because of military service and spouses of service members who died on active duty also qualify for this loan.
You can get a VA loan through approved lending institutions. It comes with an entitlement of up to $36,000, which guarantees up to $484,350 without a down payment. When getting a loan, you will need a Certificate of Eligibility. Applicants with different status must provide different types of evidence. The Department of Veterans Affairs provides details on eligibility.
What types of loans does the VA cover?
The VA covers several types of loans, the most common of which is the fixed-rate loan. Typically, debtors get either a 15- or 30-year fixed loan. Debtors make equal payments of the principal plus accrued interest. They also cover GPM, ARM, GEM, and some specialty loans.
GPM, or Graduated Payment Mortgage, allows low monthly payments for about five years. The monthly payments will then gradually increase, eventually leveling off to a higher amount for the remainder of the term. Doing this adds a portion of the interest back to the principal.
Meanwhile, ARM or Adjustable-Rate Mortgage have lower-than-market interest rates, which lenders adjust later on. The life of ARM and GPM loans are similar, but the latter is less predictable. Finally, GEM or Growing-Equity Mortgage has incremental increases in the principal, which reduces the overall interest. As for Specially Adapted Housing or SHA Grants or other specialty loans, you need to consult the VA website for details.
What will lenders look for in VA loan applicants?
Aside from the typical requirements, lenders will also look at an applicant’s VA backing. If an applicant passes, a score as low as 620 could qualify him or her for a loan. This rating is considerably lower than the mid-700s needed for non-VA loans. If you have a score lower than 620, it does not disqualify you entirely, although you need to explain it.
However, you need to have a debt-to-income ratio of 41 percent or less. For non-VA loans, the rate is 36 percent or lower. To meet this, you need to have sound credit management practices. Pay your credit cards on time, maintain low credit utilization, and check your credit reports for errors. Even if you have had a foreclosure or bankruptcy, it does not mean you cannot get a VA loan. You will need to prove your creditworthiness, though, and you will have to pass more stringent scrutiny than someone who does not have such items on their record. Also, remember that you have a VA funding fee and other payments to make—check with your lender what the related fees are for this type of loan.
A VA loan is not a gift. When getting one, you need to consider how your mortgage fits into your finances. Before you commit to a VA loan, make sure you have spoken with a mortgage broker and plan how you can meet your payments.
If you are buying a house or investing in a property, get Americas Mortgage Solutions to help. We are a licensed mortgage originator in Palm Beach, Florida, and we provide our customers with the highest standards of service and expertise. Get pre-approved for your loan today; contact us to learn more!