A VA home loan is one of the most widely used benefits available to veterans and active duty service members. In fact, more than 20 million loans have been guaranteed by the Department of Veterans Affairs since 1944. However, just because they’re widely used doesn’t mean all eligible service members understand how they work.
Several of the Home Loan Experts in our VA Unit find themselves going over the same details with different homeowners time and time again. This is a list of some of the more common things that eligible veterans and service members don’t realize about their VA loan benefits.
The loan doesn’t come from the Department of Veterans Affairs. The VA doesn’t issue the loan, however it guarantees the loan. What this means is that the VA provides assurance to the lender that a portion of that loan will be covered should the borrower default on the mortgage. In other words, the lender is covered up to the amount of the guarantee.
Only certain properties are eligible. Co-ops aren’t eligible for VA loan benefits. On its own, vacant land isn’t eligible for a VA loan, either. However, it may be eligible if it’s used simultaneously with a construction loan. And other properties, like modular or manufactured homes, are subject to the lender’s approval.
They must be used on primary residences. You can’t use your VA loan benefits to buy a vacation home or an investment property. There are residency requirements set by the VA that make these properties ineligible.
There are no pre-payment penalties. You can make extra payments over the life of your loan and pay off your loan sooner without getting penalized. These extra payments, made at any time you want, can save thousands of dollars in interest over the life of your loan.
They have a funding fee. This fee is the cost associated with obtaining a VA loan and helps to ensure that the loan continues to require no down payment and no monthly mortgage insurance. Which leads to…
There’s no monthly mortgage insurance. With other loan programs, if you don’t have at least 20 percent down on a new mortgage, you’re required to pay a monthly mortgage insurance fee. This requirement is eliminated by the VA’s Funding Fee.
You can reuse the VA loan benefit. As long as you pay off your existing loan, you’re allowed to use your VA loan benefit as often as you’d like.