How Does A VA Loan Work?

How Does A VA Loan Work?

The Process Of Getting A VA Home Loan

There are a lot of things that veterans need to understand before they can qualify for a VA Home Loan. No matter how you look at it, the Veteran’s Administration mortgage program makes it much easier for active and retired military personnel and their families to qualify for a mortgage with a competitive rate. But before you sign any papers, you should first understand the process and methods behind getting a VA Home Loan.

The Veteran’s Administration, just like the Federal Housing Authority, does not issue loans by itself. The VA will offer to help out a lender with a portion of a VA Home Loan to give the lender the backing it needs to offer a veteran the benefits of the program. When you are looking for a VA Home Loan, you should contact the Veteran’s Administration and find out which local lenders take part in the program. Those are the organizations you will ultimately deal with to get the process done.

There are some very specific criteria that you must meet before you can apply for a VA home loan. You must have served at least 181 days in the Army, Navy, Marines or Air Force during peacetime, or 90 days during times of war. If you were in the reserves or the National Guard, then you must have at least six years of service before you can qualify. Spouses of deceased veterans can take part in the program if the deceased veteran died while serving in the military, or if the veteran passed away due to injuries sustained during duty. The loan administrator at your lender’s office will help you to go through the criteria and understand it.

It is important to remember that meeting this criteria does not automatically make you eligible for the VA Home Loan program. You must still go through the application process and be approved by the Veteran’s Administration and the lender. But it does help to know that the VA Home Loan application process is much more streamlined than a standard mortgage, or even an FHA mortgage application. The VA process was designed to help veterans get their mortgage quicker and easier.

The backing that the Veteran’s Administration offers the lender allows the lender to extend veterans mortgages with no money down. That means that the veteran will not have to come up with the down payment that standard mortgages require, which can be as high as 20 percent of the purchase price. The VA Home Loan program also offers extremely competitive interest rates and can extend payment terms to veterans that will fit their budget.

There are two basic criteria that the VA Home Loan program uses to qualify borrowers; the debt ratio and the credit score. But the criteria in a VA Home Loan is much more relaxed than the requirements for a standard mortgage. For example, a standard mortgage often requires a credit score of 720 or higher just to be considered for approval. Veterans with credit scores of around 620 can qualify for a VA Home Loan.

The debt ratio is the percentage of your income that is taken up by your debt. Standard mortgages like to see debt ratios close to 35 percent. This means that 35 percent of your income is used to pay your monthly bills such as your current house payment, utilities, credit cards and insurance. This does not include food, gas and monthly expenses. The VA Home Loan only requires a 41 percent debt ratio to be considered for the program. If you debt ratio is higher than 41 percent, then you can still negotiate a loan rate with the loan officer and get a competitive rate. There may be certain financial changes or concessions you will have to make, but the criteria is not nearly as stringent as a standard loan.

The VA Home Loan program does not require veterans to add mortgage insurance to their monthly payments and there are no penalties if the loan is paid off early. The VA Home Loan program is also convenient because it allows non-veteran buyers to assume the mortgage if the veteran ever decides to sell the property. All of this makes the ownership experience much easier for the veteran and his family.

The VA Home Loan program is not for everyone. A veteran with good credit and financial means may be able to get a better interest rate and payment terms with a standard mortgage. But for those veterans who dream of a home and need the financial help to make it happen, the VA Home Loan program is available to them and their families.