VA loans were introduced as part of the GI Bill in 1944 and became increasingly popular in recent years. A VA loan is a special mortgage loan which was set up to help veterans, active duty service members, and (widowed) military spouses to buy a home. It is special because although it is the private lenders such as banks and saving companies that grant the loans, it is in fact government that supports it. If people are in default (failing to make their payments) or facing foreclosure (losing their home), the government will pay a part of the loan to the bank.
VA loans have three types: purchase loans, interest rate reduction refinance loans (IRRRL), and cash-out refinance loans.
How does it work?
As what is mentioned above, VA loans are used to help eligible people to buy a home. They can follow these steps to get one.
- Checking VA website to make sure whether they are eligible for a VA loan
- Getting recommendations from people around them or searching on VA website to find a lender
- Getting a Certificate of Eligibility (COE)
- Applying for VA loan
What are the Benefits of VA loans?
- There is zero down payment.
- Veterans do not have to pay private mortgage insurance (PMI) premiums.
- Veterans can pay the mortgage in advance without penalty.
- Bankruptcy and foreclosure will not affect veterans’ eligibility permanently.
People can still apply for VA loans after two years from the bankruptcy or foreclosure.
- Veterans can get the benefits of VA loans for multiple times as long as applicants can make their payments in time.
- Veterans who face a potential foreclosure can seek help through VA loans and ask the agency to negotiate with lenders in order to apply for VA loans.
- Closing costs are relatively low and can be paid by sellers.
- Veterans can negotiate interest rate with private lenders.