Buying 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, VA loans are available.

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.

VA Purchase Loans

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.

Following are three common types of VA purchase loans:

VA Refinance Loans

Features and Advantages of Different Types of VA Loans

Fixed Rate VA Loan

  • The interest rate is fixed for the life of the loan (whether interest rates go up or down).
  • Payments generally stay the same each month.
  • No money down unless the purchase price is greater than the assessed value of the home.
  • No private mortgage insurance required.
  • Closing costs are limited.
  • VA guaranty means competitive interest rates.

Adjustable Rate VA Loan

  • The interest rate is adjusted periodically by adding a margin to an index specified by the mortgage (a 1-year ARM adjusts annually).
  • Payments generally fluctuate along with the interest adjustment.
  • ARM’s have limits on the amount of interest adjustment that can be made in given periods and across the life of the loan.
  • No money down unless the purchase price is greater than the assessed value of the home.
  • No private mortgage insurance required.
  • Closing costs are limited.
  • VA guaranty means competitive interest rates.

VA Jumbo Loan

  • May be needed if over the standard $417,000 loan limit.
  • Depends on the limit for the county – contact us for more info.
  • Requires a small down payment.

VA Refinance Loan

  • Used to get equity out of your home for home improvements or other cash needs.

VA Streamline Refinance Loan

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.

Following are some features and advantages of VA streamline refinance loans:

  • Lower the interest rate on your loan without incurring any out-of-pocket fees.
  • You can use your original document of eligibility
  • Available only for existing VA Loans.

VA Case-out Refinance Loan

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.

More on VA Loans

VA Loans are only guaranteed by the U.S. Department of Veteran Affairs; lenders make the loans to eligible veterans for the purchase, construction, or energy-saving improvement (approved by the lender and VA) of a home.

VA loans also have easier eligibility requirements than conventional loans, often lower closing costs, and more liberal terms (usually no down payment is required) up to $417,000 however in some cases you may be able to go higher if you live in a high cost county.

The VA Loan allows a Veteran to not only purchase a home but refinance as well. Typically a Veteran will opt to refinance their VA Loan for one of two reasons.

  1. to lower their interest rate on a current VA Loan (VA Streamline Refi).
  2. to lower their interest rate from a different loan type to a new VA Loan (we call this a rate in term refi). Lastly, to pull cash out of their existing home for whatever purpose they would like (VA cash out refinance).

If you are eligible, the VA will issue a certificate of eligibility that you take to the lender when making application for your loan.

For more questions and answers about how VA Loans work contact Jimmy at Jimmy@VALoansForVets.com.