If you’re presently serving in the U.S. military or have done so in the past, we thank you. The tremendous sacrifice that you have made for our country does not go unnoticed. It’s not uncommon for present or past military service members to purchase homes. In many cases, they do so by obtaining a VA loan. The Veterans Affairs Department (VA) operates under the executive branch of the federal government, providing life-long services to military veterans throughout the country.
A VA loan is mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs. It is helpful to many veterans, especially those who might otherwise have access to affordable housing. There are several key issues to keep in mind, however, to understand how VA loans work and to help navigate the system if you plan to go this route when making a home purchase.
The VA is not the entity that is lending you money
When you purchase a home through a VA loan, it’s important to understand that the money being loaned is not coming from the VA. When you obtain a VA loan, you are receiving a loan from a private lender. The VA is guaranteeing a portion of the loan. In other words, the VA is not the originator of the loan but promises your lender to pay a certain portion of the debt if your mortgage winds up in default.
It’s always best to seek prequalification and preapproval
As is the same with a conventional mortgage loan, veterans can typically simplify the home-buying process and make it less stressful by obtaining prequalification and preapproval for a VA loan. The prequalification process enables you to estimate how much you can afford to borrow on a mortgage.
After being prequalified, you can obtain a preapproval letter, which is a lender’s way of letting a seller know that they have reviewed your financial information and are confident that you are able to go to closing on a mortgage up to a specific amount. It’s especially helpful to have a preapproval letter in situations where yours is one of multiple offers on the table for the same house.
The greatest benefit of a VA loan is a $0-down payment
One of the reasons that obtaining a VA loan is so helpful to millions of veterans is that it enables a veteran to purchase a home without putting a down payment on it. If you’re in a situation where you’d be able to afford a monthly mortgage payment on a home but simply can’t come up with enough money to make a down payment to secure the offer, the $0-down payment option provided through a VA loan may be the key benefit that helps you go to closing.
While approximately 80% of veterans who purchase homes with a VA loan take advantage of the $0-down payment option, some people obtain VA loans but still choose to make a down payment when they submit an offer on a home. This enables them to reduce the funding fee that is required when purchasing a home with a VA loan. In certain cases, such as for a veteran with reduced entitlement, a down payment might be required, which is why it’s important to know your specific status ahead of time.
Some people are exempt from funding fees
The VA loan funding fee does not apply in certain situations, such as if you are a Purple Heart recipient, you are a surviving spouse of a fallen veteran or you are a disabled veteran.
The more you learn about VA loans ahead of time, the easier it might be to navigate the system when you have found a home you love and are ready to make an offer. It’s also helpful to work with real estate agents who are well-versed in VA loan regulations. Obtaining a VA loan might just what you need to make the home of your dreams a reality!