This is a guest post from Adam Gibson. Adam is an author of Accrued Interest, a popular financial world blog. Check out Accrued Interest for the latest on the bond market, treasuries, mortgages and other financial news.
What Are VA Loans?
If you’re an active member of the United States military or a veteran of one of the armed forces branches, chances are good that you automatically qualify for a mortgage loan underwritten by the Department of Veterans Affairs. These loans are designed specifically with armed forces members in mind and their primary goal is to ensure that nearly every service member who wants to own a home can do so, regardless of the area in which they choose to live. To this end, the VA underwrites mortgage loans for service members up to a certain dollar amount (which varies widely depending on the cost of living in the chosen area).
Benefits of VA Loans
Benefits of selecting a VA loan over a traditional mortgage are numerous and include:
- Less Stringent Credit Requirements. VA Loans were designed to help borrowers who may not otherwise qualify for a home loan and, to that end, don’t have the strict credit requirements that many other mortgage loan programs do. Borrowers with a less than favorable credit report, those with little credit history, or even those who have declared bankruptcy in the past but have maintained excellent credit since can all qualify for a VA loan.
- Less Cash at Closing. Many loans require up to 20% of the purchase price as a down payment, due on the day the loan is closed. Unfortunately, borrowers also need to bring the closing costs that same day, which can often amount to as much as $8,000. In today’s economic climate, coming up with that much cash just isn’t feasible for many buyers, and the VA understands that. VA loans offer low (3%) and zero down payment options and allow borrowers to roll the closing costs into the loan amortization.
- Competitive Interest Rates and Loan Products. While the VA prides itself on offering an opportunity to service members who have had trouble in the past applying for a loan, it does so while offering highly competitive loan products. The interest rate a VA loan borrower can expect to pay closely mirrors the rate a traditional loan program would give a borrower with excellent credit and a large down payment. In addition, the VA offers several adjustable and fixed loan products to fit every lifestyle.
Qualifying for a VA Loan
Perhaps best of all, the qualification process for a VA loan is a reasonably easy one and made to be as user friendly as possible. You’ll be able to work with your local lender or bank for the entire process since the VA’s role in the loan is simply to provide a guaranty to the bank to lower the risk of your loan. You must meet the following criteria and provide documentation to your lender and the VA.
- You served 181 days during peacetime (Active Duty)
- You served 90 days during war time (Active Duty)
- You served 6 years in the Reserves or National Guard
- You are the spouse of a service member who was killed in the line of duty.
- You can document two years of steady employment, or can provide an explanation as to why two years of employment could not be obtained.
- You have a total debt to income ratio of less than 41%, after taking the potential home loan into consideration. If your debt to income ratio is greater than 41%, you’ll need to have excellent credit to support the high ratio.
How to Learn More about VA Loans
Qualifying veterans and active duty service members have absolutely nothing to lose by using the VA loan program instead of a traditional mortgage service. The rates are exceptional, the loan products are competitive, and the process is easier and less expensive than most other options on the market today. Visit your local lender for more information on the program or to get the current loan limits for your area. Alternatively, you can go to www.va.gov or call your local branch of the Department of Veterans Affairs for more information.