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VA mortgages are loans for military veterans who have served and active military members who are still serving their country. Most often people associate Veterans Administration (VA) loans with veterans only and many active duty military members overlook the possibility of a VA loan. Similar to an FHA mortgage, the VA mortgage was enacted to give military personal, both retired and active, an opportunity to purchase a home. Often enlisted military members, or those fresh out of the military, do not have the financial stability to apply for a conventional loan, but they especially deserve a safe place to raise a family.
The VA loan originated with the GI bill in 1944 after many veterans returned home from war without a place to live or a job. Private lenders, mortgage companies, and banks are available to provide VA loans to military members and veterans, but the guaranty that comes with a VA loan means the lender is automatically protected against loss if the borrower fails to repay or defaults on the loan. The guaranty replaces either private mortgage insurance (PMI), which many lenders require if the borrower puts down less than 20 percent on the loan, and/or removes legal requirements regarding the down payment for the home.
If you apply and are accepted for a VA mortgage, the company you applied with cannot require a down payment from you, nor can they require private mortgage insurance. Since the lender would be covered, there would be no necessity for the insurance or the down payment. This means that VA foreclosures are common because some see this as a “free” or easy way to get out of a mortgage if they default on the payments. Because of this, interest rates may be slightly higher on a VA loan than current interest rates on a conventional loan.
Although there is no limit on how much mortgage you can apply for in a VA loan. The VA guarantee will only cover 25% of the guarantee up to almost $90,000 so most mortgage companies will not go over $360,000, or 4 times $90,000, to make sure they will not lose out if a customer defaults on the loan.
The VA mortgage is good for buying a home and can also be used for home improvements, refurnishing or doing a make over for an existing home. The loan does not apply to farmland or to commercial loans, however. The VA loan is good for all active members and veterans and there is absolutely no limit on when the VA loan can be used. Of course you can have more than one VA loan in a lifetime, but not more than one VA loan at a time. For instance, if you mortgaged your first home with a VA loan and want to sell that home and purchase a second home, you will need to sell the first home, or refinance the home, before you qualify for another VA loan. Another requirement is that you have proof of being either active duty or a veteran, with original discharge papers, so if you are missing paperwork you will need to obtain them before receiving the loan. If you are active duty, the mortgage company working on your mortgage can reference your employment through background checks, unless they specify that other verification is necessary.
Just like conventional loans, active duty military and veterans are eligible for a 30-year fixed rate loan or something in smaller increments for their loan. Smaller mortgages are often offered since many active-duty military personnel will not be living in the same home for the entire 30-year period. VA loans are usually offered in adjustable rate mortgages (ARM) from 30-year mortgages down to smaller sizes, with ARMs of 3/1, 5/1, 7/1, and so on. These rates mean that your loan will be a fixed rate mortgage for the first three, five, or seven years but then will be available for an adjustable rate change.
You can use a VA loan in partnership with someone who does not qualify for a VA mortgage, such as a spouse or significant other, but remember that the VA guaranty only covers the military member’s portion of the mortgage. Keep this in mind when deciding who will sign and co-sign for the mortgage.
There are many options available for acquiring a mortgage, so be sure to check out a VA mortgage if you are a current or prior military member.
Special Mortgage Types
The 40 Year Mortgage
Buy to Let
Adjustable Rate (ARM)
No Cost Mortgages
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