A VA loan is a type of loan that is guaranteed (but not originated) by the United States Department of Veterans Affairs (VA). It can be used to purchase properties including single-family houses, condominiums, and multi-unit properties such as duplexes.
The VA loan program was created in 1944 when Congress passed the G.I. Bill. The bill was intended to help World War II veterans readjust to civilian life in part by making affordable home mortgages more readily available. Since its creation, the VA loan program has guaranteed more than 25 million home loans, with 1.2 million loans guaranteed during the 2020 fiscal year alone. The program has proven itself of especial value to veterans during times of economic crisis, such as the Great Recession of 2008 and the COVID-19 pandemic.
Who Is Eligible for a VA Loan?
The VA loan program is intended for veterans of the U.S. Armed Forces. Additionally, it’s for actively enrolled members of the U.S. military, reservists, and surviving spouses of military members (under the condition that they do not remarry). You may be eligible for a VA loan if you meet one or more of the following criteria:
1. You have served 90 consecutive days or more during wartime;
2. You have served 181 days or more during peacetime;
3. You have served six years in the National Guard or reserves;
4. You are the spouse of a service member who perished in the line of duty, or as the result of a service-connected disability.
If you served in the U.S. Armed Forces and do not meet one of these criteria, you may still be eligible for a VA loan. Exceptions are made for service members who were discharged at the convenience of the government, for a medical condition or service-connected disability, hardship, and some other circumstances that were outside of the service member’s control.
What Are the Benefits of a VA Loan?
Their multiple outstanding benefits make VA loans a far more appealing option to veterans than most other types of home loans. These include:
- No down payment. Veterans who wish to transition to domestic life as quickly as possible can finance 100% of their new home’s value with a VA loan. That means a $0 down payment – regardless of their new home’s value.
- No private mortgage insurance. Most conventional loans require the borrower to pay private mortgage insurance (PMI) when their down payment is less than 20% of their new home’s purchase price. The average PMI premium rate is usually 0.58 to 1.86%, which means a veteran may save approximately $125 per month when they purchase a $250,000 home.
- Reduced Credit Requirements. The VA may reference a borrower’s credit score to assess their risk of default. But, it does not enforce a minimum credit score to determine whether or not to issue a VA loan. This is ideal for younger veterans who may not have had time to build their credit scores. It can also be ideal for others whose credit is inadequate to secure an affordable conventional loan.
- Low interest rates. On average, VA loan interest rates are 0.5 to 1% lower than conventional home loan interest rates.
How Do I Apply for a VA Loan?
If you meet the criteria, the process of applying for a VA loan is just like applying for any other type of loan: preapproval, home search, contract, underwriting, and closing. Although the process is straightforward, many people find that applying for a VA loan becomes much easier with an expert’s assistance.
If you or someone you know qualifies for a VA loan and would like to meet with one of our loan officers in Becker, Monticello, or Princeton, Minnesota, then we welcome you to contact Sherburne State Bank today!