The U.S. Department of Veterans Affairs surely provides one of the most affordable loan programs in the U.S. Through its guaranty, lenders are willing to extend mortgage financing to veterans and their families at less stricter terms. This is called the VA Home Loan Benefit. And there are two major uses of this benefit.
1. Purchasing a Home
VA guarantees a portion of home purchase loans being made to borrowers so they can enjoy these benefits:
- No down payment. Unless the lender requires or the purchase price exceeds the reasonable value of the property.
- No or limited closing costs. You can ask your seller to pay a portion or all of the closing costs.
- No private mortgage insurance.
- No minimum credit score requirement. Lenders must evaluate the whole loan profile of the borrower.
- No prepayment penalty.
- No maximum DTI (debt-to-income) ratio. Subject to lenders providing compensating factors for DTI ratios exceeding 41%.
- No loan amount ceiling. But VA limits its Home Loan Guaranty. Loan limits vary per county.
VA home loans are open to eligible service members, veterans, spouses, and other beneficiaries. They don’t have to be first-time homebuyers and their property need only be “safe, sanitary, and sound.”
When you apply for any VA loan, you are required to pay a VA funding fee that can be rolled into the loan. But you can be exempt from paying this if you are receiving a VA disability compensation. VA home loans can be assumed by qualified persons, e.g. eligible veterans. And if loan repayment proves to be difficult, you can ask assistance from any VA personnel.
And the best part is you can reuse the VA Home Loan Benefit in order to do a refinance of your VA loan.
2. Refinancing a Home via IRRRL
The Interest Rate Reduction Refinance Loan Program by the VA provides a streamlined process of refinancing for existing VA homeowners. The IRRRL lets you:
- Lower your current rate to reduce your monthly mortgage payments.
- Shift from an adjustable-rate mortgage to a fixed-rate mortgage.
This VA-to-VA refinance has these features:
- No appraisal.
- No credit requirement.
- No closing costs. Costs associated with the new loan can be included in the new loan or lender imposes a higher rate so it can pay the closing costs.
- No cash-out allowed.
- No IRRRL proceeds shall be used to pay another loan, except for the VA loan. If you have a second mortgage, the relevant mortgage holder must agree to subordinate the lien to the new VA loan as first mortgage.
- No occupancy requirement. That is, you only need to show proof that you have previously occupied the home.
- No need to secure a new COE (Certificate of Eligibility). As you have already presented your COE when applying for a VA purchase loan before.
- No refinance loan limit but VA will limit its guaranty.
Lenders are not required to give IRRRL to their borrowers but you can approach any VA-approved lender for an IRRRL. It’s always best to shop around for rates and terms.