VA Home Loans and How to Qualify
VA provides home loan guaranties to help veterans buy, repair, build, or keep a home. Generally, service members, veterans, and some surviving spouses are eligible for VA home loans, but there are exceptions.
What Are VA Home Loans?
In general, VA home loans are loans that are provided by private lenders (banks and mortgage companies), and are guaranteed by VA in order for a veteran or service member to get more favorable terms on their mortgage.
VA has multiple different types of loans but the idea remains generally the same for all loans. Veterans can enjoy lower interest rates on their loans and may be able to pay lower down payments for their homes guaranteed by VA.
Types of VA Home Loans and Eligibility
VA has multiple types of loans that vary in terms of the benefit the veteran or service member receives and eligibility.
Purchase loans are for individuals who want help buying a home. According to vets.gov, a VA purchase loan can be used for veterans or service members to:
- Buy a single family home
- Buy a condominium (in a VA-approved project)
- Buy a house and make home improvements
- Purchase a manufactured home or lot
- Build a new house
- Make alterations to their home that would make the house more energy efficient
This type of loan results in competitive interest rates and may not even require that the veteran or service member make a down payment on their home. This loan also allows veterans and service members to borrow up to the Fannie Mae and Freddie Mac conforming loan limit for a no-down payment loan in certain areas.
There is no penalty fee if the veteran or service member pays the loan off early, and there are fewer closing costs.
To receive a VA purchase loan, a veteran or service member must meet these criteria, according to vets.gov:
- “Qualify for a VA-back home loan Certificate of Eligibility (COE)” and
- Meet VA’s standards for credit, income and other requirements; and
- Intend to live in the home you will purchase with the loan.
Cash-Out Refinance Loans
A Cash-Out Refinance Loan is for veterans or service members who want to take equity out of their home or refinance a non-VA home loan into a VA loan. A VA loan may have lower interest rates and better terms than the veteran’s current loan. Additionally, Cash-Out Refinance Loans give veterans and service members the opportunity to take cash out of their home equity to use to pay off debt, pay for education, or make improvements to their home.
Eligibility for Cash-Out Refinance Loans is the same as for Purchase Loans above.
Interest Rate Reduction Refinance Loans (IRRRL)
An Interest Rate Reduction Refinance Loan (IRRRL) allows veterans to refinance their current loan under new terms, such as a reduced mortgage payment or interest rate. IRRRL can also give veterans the opportunity to move their loan from an adjustable or variable interest rate to a fixed rate.
Eligibility for IRRRL is different from the loans already discussed because IRRRL is available only to veterans who are refinancing a property for which they have used their VA loan. Since veterans will have already received a VA loan, a Certificate of Eligibility (COE) is not necessary when applying for IRRRL.
To be eligible for IRRRL, veterans must:
- Have a VA home loan already
- Use IRRRL to refinance their existing VA home loan
- Prove that they currently, or used to, live in the home that is covered by the loan
Native American Direct Loan Program (NADL)
The Native American Direct Loan Program (NADL) is for veterans who are Native American, or have a spouse that is Native American. NADL helps veterans get a loan to buy or build a home on Federal Trust Land, or improve a home already on Federal Trust Land.
NADL offers several benefits to veterans, including not requiring a down payment in most circumstances, fewer closing costs, and a low-interest, 30-year fixed mortgage. Additionally, veterans can receive more than one NADL and use the program to refinance another NADL.
Eligibility for NADL is slightly different than eligibility for a Purchase Loan or Cash-Out Refinance Loan. According to vets.gov, a veteran must meet the below criteria in order to receive NADL:
- Veterans must be Native American or married to a Native American
- The veteran’s tribal government must have a Memorandum of Understanding (MOU) with VA which details how the program will work on the Trust lands
- Veterans must have a valid VA home loan Certificate of Eligibility (COE)
- Meet VA’s credit standards
- Have proof that they make enough money to cover mortgage payments and additional costs of owning a home
- The veteran will live in the home they are using NADL to improve their home, or build or buy a new home
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