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10 tips to keep in mind before applying for a VA loan

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Veterans Administration (VA) loans are among the most common types of loans in today's financing market.


They offer many benefits to eligible borrowers and are primarily used to purchase, refinance and even improve a home.


Learn 10 tips you should know before applying for a VA loan :


1) It is a secured loan. A Veterans Administration loan is a loan guaranteed by the U.S. Department of Veterans Affairs, which means that the lender providing the financing to the borrower is protected from loss if the buyer fails to repay the loan.




2) Not everyone can apply for a V.A. loan. You must be a veteran or active duty service member to qualify for VA financing. Veterans can apply for VA financing from any mortgage lender participating in the VA Home Loan Program, and a valid Certificate of Eligibility (COE) must be presented, along with credit and income requirements, in order to qualify for the loan.


3) Lower than normal fees to elected veterans. With a VA loan, the borrower typically receives a lower interest rate than is typically offered for other types of loans. In addition, a VA loan can be used to obtain lower rates on refinances up to 100% of the loan value.


4) It offers more flexible credit guidelines. The minimum accepted score for a VA loan is about 620, but depending on the circumstances, some lenders may accept a score as low as 550. Also, while other types of loans may offer similar credit score guidelines, a 620 credit score for a conventional or FHA loan will result in more obligations for the borrower and require a larger down payment.


5) No private mortgage insurance (PMI) is required for VA loans, and the program can also be used to eliminate mortgage insurance (MI) on other loans. For example, an existing loan can be refinanced by changing its loan program to a VA loan, eliminating private mortgage insurance and reducing the monthly mortgage payment. Although mortgage insurance is not required for VA loans, the VA charges a finance charge to issue security to the lender against the borrower's default on a mortgage loan; however, unlike PMI, which is present for the entire life of the loan on other types of loans such as FHA and USDA, the finance charge (FF) can be paid up front in cash by the buyer or seller, or it can be financed into the loan amount. There are also credit options for the financing fee paid by the lender on VA financing, if applied for up to 3.3%, and some veterans may even be exempt from paying a financing fee on their loan (additional documentation required).


6) Veterans loans usually do not require a down payment. Generally, a VA loan does not require a down payment. The down payment will vary based on the amount remaining in the borrower's VA entitlement and the purchase price or appraised value of the home and will be a percentage of the difference between the two.


7) Only one eligible Administration loan for each Veteran. There is no limit to the number of VA loans one can have at one time, as long as there is still a VA entitlement to use. For loans over $144,000, the entitlement amount is generally equal to 25% of the VA funding limit for the county where the subject property is located.


8) There is no prepayment penalty on Veterans Administration loans. Any VA loan can be repaid in full at any time, which is a great advantage because it saves a considerable amount of money on interest.


9) The maturation period for bankruptcy, foreclosure or short sale is shorter for veterans Administration loans compared to other types of loans such as conventional or FHA loans. In most cases, one can qualify for a VA loan after 2 years of filing for bankruptcy or foreclosure on the home, while it takes 4 years for bankruptcy and 7 years for foreclosure on a conventional type loan.


10) It can only be used for the purchase of a primary residence. VA benefits cannot be used to purchase a second home or investment property; however, they can be used to refinance a VA loan that was previously occupied as a primary residence to reduce the interest rate (VA IRRL).


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