How VA Loans Work: What Most Borrowers Don’t Know About VA Loans
Today, on Redhead Mom, I’m sharing a partnered guest post about how VA loans work and what most borrowers don’t know.
A VA Loan is a loan you can use to buy a house or part of a house. It is for people who are in active military service, for veterans and for surviving spouses. There are a slew of eligibility criteria and home-choice requirements. Still, it is a viable borrowing option for some people, especially first-time buyers who are having trouble getting started on the housing ladder.
There are two things that most people do not know about VA loans. The first is that you can have more than one VA loan throughout your life. The second is that most have a “No down payment” policy up to a certain amount, but it is possible to go above that amount if you need more money. Here is more you need to know.
No Down Payment
VA Loans are offered by private companies, and they are allowed to offer a certain amount of money for a house with no down payment. The no-down-payment offer applies up to a certain amount of money (depending on the lending company and the state). For example, if your lender offers VA Loans, you may be able to borrow up to $45,000 without paying a down payment.
The problem is that housing costs in nicer places and especially in cities are so high that amounts like $45,000 and $65,000 only cover a portion of the cost of the house. If you want a house for $100,000, and the VA loan only offers no down payment up to $60,000, then you will have to cough up a down payment for the remaining $40,000.
No Mortgage Insurance
Let’s say you buy a house and there is a bit of a down payment and a few fees, but you are feeling confident you can strike the deal, what about the mortgage insurance fees. As you are trying to budget for the future, try using a tool like the VA calculator from WhatsMyPayment to figure out your ongoing costs for your loan and mortgage insurance. If you paid no or little down payment, there is a chance you can skip mortgage monthly fees too. Talk to your VA lender to get the details, but some borrowers are able to avoid private mortgage insurance (PMI) completely
Use it Again and Again
There are some people who try to exploit the system to buy investments and make money. That is why there are so many restrictions on VA loans. What few people know is that you can use the VA loan service several times, and the only downside is that a few fees go up a little with repeated use. If you are looking to climb up the housing ladder, then you can use your VA loan, pay off the loan (house), and then apply for another VA loan to help you get your next house. Even if you have lots of money from selling your first house, your VA loan entitlement is fully restored once you have paid it off. Your benefit does not expire. There are people who served 50 years ago who are still able to use VA loans.
To check eligibility, you may have to obtain your DD Form 214. A photocopy is given to the VA-approved lender so they can request your VA Certificate of Eligibility. This is a slow process, but in the meantime, you can check rates, get quotes, and keep looking for a house. It is not that different from the slow paperwork process that comes with most house purchases. Approach mortgage advisors in Auckland if you have any queries.
VA Loan Rates Are Competitive
Some predatory companies are going to tell you that VA loan interest rates are better than those you get in the regular mortgage market. They are lying in almost every case. If you were to approach a regular mortgage lender, if you had a good deposit (down payment), a good credit rating and a good debt-to-income ratio, then mortgage companies would be falling over themselves to offer you good rates.
On the other hand, if you do not have those things, and if your credit rating is okay but not good, then there is a chance your VA loan will have a more favorable interest rate. It will certainly have better entry conditions than a regular mortgage.
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