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Government backed mortgage
Government backed mortgage are the type of mortgage which is secured by the federal agency. There are 3 types of loan namely FHA, VA, USDA. Depending on the borrower's situation, they may qualify for one or more. It is easier to qualify for these types of loans when compared to the conventional loans. Even though these loans are secured by federal agency, the same mortgage agent can facilitate the loan.
VA Loan
VA loans are the type of loans guaranteed by Department of veteran affairs and are funded by private lenders. These loans are available to the military service person or veterans who meet certain requirements. VA guarantees to pay the loan amount if the borrower defaults to repay. There is no down payment or mortgage insurance required as defined in the FHA loans. VA loan requires a one time Funding fee. The property must meet the building standards and building codes and must be a Primary residence. VA loans are considered as a non qualified mortgage loans because of their low credit limit, lower interest rates, no down payment required. VA loans doesn't have monthly mortgage insurance.
Certificate of Eligibility (C.O.E) and Property Requirements
This is a certificate that assures that the Veteran is eligible for the loan and meets the requirements needed for the loan. Veterans must provide a proof of service to obtain a certificate of eligibility.
Must have completed an active service duty for at least 90 days.
The surviving spouse of an active duty member are also eligible for the loan.
Served at least 181 days of an active service duty during war.
Must meet the lender's requirements in credit and income. The lenders usually have their own standards and expectations.
Veterans need to submit DD Form 214. This is a certificate that certifies the military discharge.
Have 6 years of service as a National Guard or Reserves.
VA lenders typically require a credit score of 620 to obtain financing.
The property must meet the standards and must be a primary residence and occupied within 60 days of purchase.
Typically, the lenders need the veterans to have a debt to income ratio of at least 41.
Some lenders require the veterans to provide a proof of reserves for at least 2 months of mortgage payments.
Funding Fee
VA loans have a one time funding fee, which is directed towards the Department of Veteran Affairs. Veterans with disability may have the option to waive this fee. It is usually around 2% for the first time home buyers and a little over than 3% for the repeated home buyers. They have the option to roll this cost into their loan.
Types of Loans
VA offers variety of loan programs, the eligibility depends on the requirements expected to be met by the borrowers and the lenders.
VA Purchase Loan - Provides loan for the qualified veteran members at 0% down payment.
Cash out refinance - Provides cash out from the home equity for the qualified veteran members. This can be done on a VA loan or a conventional loan can be converted to VA at the time of cash out.
IRRL ( VA Interest Reduction Refinance Loan) - It replaces the current VA mortgage to a VA mortgage with a lower interest rate or a refinance from an adjustable rate mortgage to fixed rate mortgage. This is also called as Streamline refinance.
VA Rehab Loan - It provides finances for the cost of home renovation or home improvements.
VA Energy Efficient mortgage - Provides finances for the renovation of home with energy efficient features.
NADL (Native American Direct Loan) - Helps Native Americans veterans to buy, improve or refinance a home.
Benefits of VA loan
Home can be purchased with 0% down payment and without any mortgage insurance as needed in FHA.
Interest rates are much lower when compared to other types of loans.
Department of Veteran Affairs limits the lender's origination fee to not to exceed 1% of the loan amount and prohibits lenders from charging other closing costs.
VA loan is not a one time deal. Veterans may sell the home and pay off loan, a qualified veteran may assume the current veteran's loan, once the home is repaid, an additional home can be purchased as a primary home.
Disadvantages of VA loan
VA loans are limited to primary homes, does not apply to rental or investment properties.
Loans are only eligible if the home meets certain standards needed by the Department of Veteran Affairs and the home is usually appraised by the VA approved appraiser.
Though the loans require 0% down payment, they have an extra cost called Funding fee which is usually rolled into the loan.
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