What Is A VA Loan?

April 21, 2009 by  
Filed under Home Finance

If you are a veteran of the armed forces of the United States, or the spouse of a veteran who was killed in action, you can apply for a VA loan. A VA loan gives veterans a chance to get a home mortgage for much less than the rate that is offered for a conventional loan. Like the FHA loan, a VA loan is backed by a branch of the federal government. In this case, it is backed by the Department of Veterans Affairs, a department that used to be called the Veterans Administration, hence the acronym.

The VA loan not only allows you to get a lower interest rate, but it allows you to put less money down for the home. A conventional mortgage requires 20 percent of the value of the home for a down payment. Some people who qualify for a VA loan can go with no money down mortgages, although most lenders will want at least 3 percent down on this type of loan.

Just like a conventional mortgage, a VA loan recipient must submit the proper paperwork to get the loan. This includes bank statements, verification of income or employment as well as tax returns. The lender will do a credit check, although the VA backed loans are more forgiving when it comes to credit scores than the conventional loans. You should still have decent credit if you are applying for a VA loan.

Any member of the service or former member of the service can apply for a VA loan. If your service was prior to 1980, you must have served at least 2 years in the armed forces. Those who served in the National Guard or reserve forces are also eligible to apply for a VA loan. Unlike the FHA loan, that can be used only once, the VA loan can be used 3 times for the veteran or spouse of the veteran.

In addition to saving money on the rate as well as requiring a lower down payment, the VA loan will also save the borrower on closing costs that are normally the responsibility of the buyer. However, because sellers are often hesitant about selling a home through the VA or FHA programs, because of the stringent government guidelines and fees that the seller has to incur, many costs are paid outside of closing for these loans. For example, since the seller is supposed to pay the closing fees for the buyer in a VA loan, these costs will reflect to the seller on the closing statement, but the buyer will cut a check to the seller to pay for the costs outside of closing.

Anyone who has served in the armed forces or is the widow or widower of someone who was killed in action while in the US armed forces should apply for a VA loan. Your mortgage lender will show you how you can get a VA mortgage loan. This is not a loan made by the Department of Veterans Affairs, but one that is made through a regular lender that is backed by this government agency. Most lenders will be able to make a VA home mortgage for a qualified applicant.

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