4 Types of VA Loans

4 Types of VA LoansBuying a new home can be an exciting yet stressful experience, whether it’s your first home, second or even third. When you’re taking out a mortgage loan, it can be even more complicated. Luckily for veterans and military personnel, they have VA loan available to them.

Types of VA Loans

Whether you’re making your first home purchase or refinancing your current mortgage, it’s important that veterans know the types of VA mortgage available. Here are four types: 

  1. VA Purchase Loan

The VA purchase loan is probably the most common type of VA loans. This loan allows veterans who meet the eligibility requirements to purchase a home without having to worry about having a down payment.

About the only real requirements, other than being a veteran or spouse of a veteran, are that the borrower must meet the income and credit requirements and must also use the home as his or her primary residence.

  1. Streamlined VA Refinance

The streamlined VA refinance loan, also known as Interest Rate Reduction Refinance Loan, is a mortgage loan that allows the veteran to take advantage of lower interest rates.

VA loans are very advantageous to veterans because it not only offers lower interest rates but also allows the veteran to have lower monthly payments and possibly not have to pay closing costs.

The lender may offer to pay for the closing costs in exchange for slightly higher interest rates. The buyer may choose to take the lower interest rates and include the closing costs right into the loan.

  1. VA Cash-out Refinance

The VA cash-out refinance loan is a mortgage loan that allows veterans to take advantage of lower interest rates and get cash out of the equity of their home.

The home’s equity is how much the home is worth in terms of a home appraisal. For instance, if a veteran owes $80,000 on a home that’s worth $120,000, the veteran has $40,000 in equity. The $40,000 is the amount the borrower can take out in cash.

Some lenders won’t allow borrowers to take out more than 80 percent of the home’s equity while others may allow them to cash out 100 percent. Lenders may vary in their lending policies.

Veterans interested in a cash-out refinance will have to submit a Certificate of Eligibility to the lender.

  1. VA Rate-and-Term Refinance

The VA rate-and-term refinance is a mortgage loan that gets its name based on what it does. It allows the veteran to refinance a current mortgage to either change the interest rate or the term of the mortgage.

It differs from a cash-out refinance in that the borrower cannot take any cash out of the home’s equity. The loan balance basically stays the same.

If the veteran owes $100,000 on the loan, he or she will continue to owe this amount after the refinance. The only difference will be in the interest rate and the term of the VA loans.

Often, first-time borrowers take out mortgages with long terms, like 30 years, to have lower monthly payments. After paying on the loan for a few years, the individual may be in a better place financially and want to go with a shorter term.

However, the individual may choose to stay with the 30-year mortgage and take advantage of lower monthly payments resulting from the lower interest rates.

 


What Are the Seller Concessions?

What Are Seller Concessions When Buying a Home With a VA LoanBuying a home can be a complicated transaction. What initially appears as a simple transaction may get somewhat complicated when you factor in closing costs, loan fees, and whatnot. Suddenly it appears the asking price isn’t what you originally thought.

Seller concessions can be helpful in situations such as this. Learn how this can help you when buying a home with a VA loan.

What Are Seller Concessions?

These are contributions the seller agrees to make at the closing of a mortgage loan. Buyers often don’t realize how loan fees and closing costs can add up and change the amount of the loan.

In some situations, where the closing costs are high, a buyer may have to cancel the loan because of the final price being too high.

Seller concessions can help the home buyer go through with the loan because the seller is agreeing to pay many or all the additional fees. Depending on the type of loan, there may be a cap on the amount of concessions the seller can pay for the buyer.

What Type of Fees Are Included in Seller Concessions?

The types of fees that are included in seller concessions may also vary by the type of mortgage loan. Keep in mind that there are various types of mortgage loans, including VA, Freddie Mac and Fannie Mae, USDA, FHA and conventional mortgage loans.

Closing costs typically can include transfer fees, loan processing fees, title insurance costs, appraisal fees and transfer fees, among others.

When dealing with VA loans, the seller concessions may only go towards the following:

  •                Paying the buyer’s VA funding fee
  •                Prepayment of insurance or taxes on the home
  •                Paying extra points above two percent of the loan
  •                Providing escrow funds to give buyer a temporary interest rate buy down
  •                Paying off some of borrower’s bills or credit accounts
  •                Gifts from the buyer such as appliances

Generally speaking, seller concessions do not just include the typical closing costs but often go beyond that amount. While there may be a maximum percent s a buyer can ask the seller to pay, this does not include the loan-related closing costs. The concession is like an extra bonus.

VA Loan Seller Contribution Maximum

The amount that may be included in seller concessions also varies by loan type. Each loan type has their own maximum amount.

For instance, while USDA loans and FHA loans set their max at 6 percent, conventional loans can go anywhere from 2 percent to 9 percent. Some of it may also be dictated by individual state laws as well.

In the case of VA loans, seller concessions cannot be higher than 4 percent of the loan amount. If the loan amount is $150,000, it cannot be more than $$6,000.

Keep in mind, though, that while the seller may be limited to only paying $6,000 in concessions, the seller may also pay an additional amount towards customary loan costs. This total can add up to a lot and be a real savings to the buyer.

Here is an example of how this might work. Say the buyer’s closing costs for things like loan origination fee, title insurance and appraisal come to 2% of the purchase price. The buyer agrees to pay the VA funding fee, insurance, taxes and pay off some of the buyer’s old debts. This amount totals 3% of the sales price. Although the total paid by the seller equals 5%, it’s allowed because only 2% is actually going towards the closing costs.