BUYING A HOME WITH A VA BACKED LOAN
The U.S. Department of Veterans Affairs (VA) helps active-duty military members, veterans and surviving spouses buy homes.
The VA guarantees part of the loan, making it possible for lenders to offer some special features. VA loans come with competitive interest rates and require no down payment. You aren’t required to pay for PMI/Private Mortgage Insurance, and a minimum credit score isn’t needed for eligibility.
If it becomes difficult to make payments on the mortgage, the VA can negotiate with the lender on your behalf.
Am I eligible for a VA-backed purchase loan?
You may be able to get a VA-backed purchase loan if you meet all of the requirements listed below.
All of these must be true. You:
You do not need private mortgage insurance (PMI) or mortgage insurance premiums (MIP)
YOU SERVED OUR COUNTRY WITH HONOR. Now let the VA Loan program pay tribute to your service.
VA Loans are guaranteed by the U.S. Department of Veterans Affairs, also known as a government loan.
Your loan will have to be approved based on VA parameters. You may need to pay the VA funding fee. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.
It is based on the type of loan you get, and the total amount of your loan. This fee is calculated as a percentage of your total loan amount. Depending on your loan type, the following factors determine your fee:
Your military category, and whether it’s your first time using a VA-backed or VA direct home loan, and your down payment amount. Your lender will also charge interest on the loan in addition to closing fees. Please be sure to talk to your lender about any loan costs that may be added to your loan amount.
A VA Interest Rate Reduction Refinance Loan — or IRRRL (pronounced “Earl”) — is often called a “VA streamline refinance” because the lending approval process is greatly simplified. An IRRRL doesn’t require an appraisal or go through the typical VA lender underwriting process. That saves a lot of time, paperwork and fees.
A VA IRRRL is used to refinance one VA mortgage into another. You get a lower rate, lower payment, or both. You can change to an adjustable rate or fixed rate. IRRRL's are much easier than regular VA loans.
You’ll still need to deal with a Department of Veterans Affairs-approved lender. And the VA is adamant that a refinance must offer a real financial benefit. That means you’ll need to lower your interest rate or reduce your monthly payment.
Refinancing your mortgage can be a great way to save on interest. Can you can get a cash-out VA streamline refinance?
The answer is no, but there’s an exception: Up to $6,000 in cash can be taken out from your IRRRL for energy-efficient improvements. A lender may require an energy audit of your home to prove the upgrades will provide a real return on investment.
Other than that, there are no other cash-out options on an IRRRL. Your closing costs can be rolled into your loan balance or priced into your interest rate, just like any other VA home loan.
IRRRL: Go from ARM to fixed.
Moving from an ARM to a fixed-rate loan is the one instance when the VA will allow you to increase your mortgage interest rate on a refi.
If you want to move to a shorter term — say from a 30-year to a 15-year mortgage — you can do that, too. You’ll save a lot of interest over the life of the loan, but your payment will be higher. A good VA lender will work with you to make sure that any increase in your monthly mortgage payment will still work within your estimated living expenses.
VA IRRRL qualifications and fees
The looser restrictions don’t stop there: You don’t even have to live in the home to qualify for a VA IRRRL. That means you can use it to refinance a house you’re currently renting out. You’ll need to certify that you previously lived there.
Am I exempt from the VA Funding Fee?
One thing you can’t avoid is the VA Funding Fee. For most borrowers, that will mean a 0.5% charge. The fee is waived for some VA borrowers, including those with service-connected disabilities and certain surviving spouses. It’s always a good idea to shop more than one lender, even for something as simple as a VA IRRRL. That’s because interest rates and closing costs can vary from one lender to another, and some lenders “overlay” certain loan requirements that others don’T.
Since 2012, the Consumer Financial Protection Bureau has tracked the number of complaints reported by veterans regarding mortgage refinance offers.
Prospective VA borrowers are frequently barraged with direct mail solicitations that look important, time-critical and official. With more lax underwriting and document requirements, many lenders are happy to do VA IRRRL loans — so much so that some lenders would encourage qualified VA borrowers to refinance frequently, sometimes just months after their last refi. This sales process is called “churning.” It’s important to understand any loan offer you receive and never rush to make a decision — no matter how great the deal seems.
How much is the VA funding fee?
The fee changes depending on what the loan type is. If it’s your first time using the loan than it is 2.3%. If it’s your second, third, fourth time using it than it is 3.6%.
If you are doing a VA cash out then it is 2.3% if it is your first time, and 3.6% for second, third, fourth time use of the program. If you are doing a rate and term refinance called an IRRRL, then it is .5%
Who is exempt from paying the VA funding fee?
Veterans who were injured while in service are exempt from paying the VA funding fee if they receive disability compensation or have a disability rating of 10% or higher. Surviving spouses of veterans who died in the line of duty also qualify for a funding fee exemption.
As of January 1, 2020, Purple Heart recipients also qualify to receive a VA funding fee exemption when obtaining a VA home loan.
Remember the VA has the last word on who is exempt, and some issues may be dealt with on a case-by-case basis. If you have any doubts, ask your local VA rep to review your service records (or your spouse's records) to get a determination from the VA.
It's truly a relief to be able to refinance your home with very low closing costs and great rates.
Veterans who have served their country deserve no less than the best, and that is why the VA Loan streamline refi works!
Whether you are looking to purchase a home or refinance your current home, use our contact form below or call Kathie Adler, 631-804-9044.
We love our customers, so feel free to visit during normal business hours. Whether a Reverse Mortgage or conventional or FHA or VA loan, we can help.
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