A VA-guaranteed loan is a loan made by private lenders (such as banks, savings & loans, or mortgage companies) to eligible veterans. If you want to purchase a home, condominium or manufactured home, the VA can guarantee up to $417,000 of the total loan -- much higher than you can get with most conventional home loans. If you are considering refinancing an existing loan, VA offers you two options. You can either refinance to reduce your current interest rate or you can take equity out (cash-out). The "cash-out" option is limited to $144,000.
Better yet, there is no need to worry about financing a down payment (the portion of the home purchase price which the buyer pays in cash and does not finance) with a mortgage on a VA loan. However, certain funding fees (the percentage of total home loan paid to the VA at time of loan closing)and closing costs (expenses over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property, aka settlement costs) apply, and you must be able pay a portion of these fees upfront.
With a VA guarantee, you get a mortgage with a competitive interest rate. The lender you borrow money from is protected against loss up to the amount of the guarantee if you fail to repay the loan, and you have the flexibility to purchase a great home. Visit the Veterans Administration website for the current table of VA Funding Fees and for information on veterans who are exempt (pay zero) from funding fees.
Specifically, a VA home loan can help veterans:
- Buy a home or residential condominium
- Build a home
- Repair, alter or improve a home
- Refinance an existing home loan
- Buy a manufactured home with or without a lot
- Buy and improve a manufactured home lot
- Install a solar heating or cooling system or other weatherization improvements
- Purchase and improve a home simultaneously with energy efficient improvements
- Refinance an existing VA loan to reduce the interest rate
- Refinance a manufactured home loan to acquire a lot
There are other VA Home Loan Safeguards:
- The VA may suspend from the loan program those who take unfair advantage of veteran borrowers, or decline to sell a new home or make a loan to an eligible veteran of good credit because of race, color, religion, sex, disability, family status or national origin.
- The builder of a new home is required to give the purchasing veteran a one-year warranty that the home has been constructed to VA-approved plans and specifications. A similar warranty must be given for new manufactured homes.
- In cases of new construction completed under VA or HUD inspection, the VA may pay or otherwise compensate the veteran borrower for correction of structural defects seriously affecting livability if assistance is requested within four years of a home loan guaranty.
- The borrower obtaining a VA loan may only be charged the fees and other charges prescribed by VA as allowable.
- The borrower can prepay without penalty the entire loan or any part not less than the amount of one installment or $100.
- The VA encourages holders to extend forbearance if a borrower becomes temporarily unable to meet the terms of the loan.
If you plan on purchasing a home in California, you may qualify for a special Cal-Vet home loan.