The Complete VA Home Loan Guide

Everything you need to know about the VA Home Loan Program

What is a VA Loan?

In 1944, the United States government created the VA Home Loan program to help returning service members purchase homes without needing a down payment or stellar credit. Over the course of it’s existence, the program has guaranteed more than 20 million VA loans, helping active duty military members and veterans purchase or refinance a home.

A VA Loan is a type of mortgage loan which is guaranteed by the United States Department of Veterans Affairs (VA). The VA Home loan program is available to American veterans, active duty U.S. military, and under certain circumstances surviving spouses. The program can be be utilized to purchase single-family homes, manufactured homes, multi-unit properties, select condominiums and new constructions. The VA does not originate loans, they simply guarantee the loan. The VA’s responsibility is to set and enforce the rules for who may qualify, and set minimum guidelines and requirements under which mortgages may be offered. The intention of the program is to supply home financing to eligible veterans and help veterans purchase real estate with no down payment.

Benefits of the VA Home Loan

No Down Payment

Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home’s value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.

No Private Mortgage Insurance

Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they’re able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default. With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI. This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.

Lower Interest Rates

Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates. Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.

VA Loans vs. Conventional Loans

The VA Home Loan program is one of the most powerful programs created by the federal government. See how the VA Loan compares to a conventional home mortgage:

VA Loan

  • $0 Down
    •  If you qualify, you get to take advantage of the $0 down payment for a home loan. 
  • No PMI
    • Banks simply don’t require you purchase private mortgage insurance because the loan is backed by the federal government. 
  • Competitive Interest Rates
    • The VA guarantees the loan so the lenders assume less risk. More safety and flexibility means a better rate for you!
  • Easier to Qualify
    • Banks assume less risk and have less stringent qualification standards for VA Loans because the loans are backed by the government, making them easier to obtain.

Conventional Loan

  • Up to 20% Down
    • Conventional loans generally require down payments that can reach up to 20% to secure a home loan, pushing them out of reach for many homebuyers.
  • PMI Required
    • Banks require borrowers to carry mortgage insurance if they finance more than 80% of their homes value. An additional expense added to your monthly payment.

  •  Increased Risk for Banks
    • Without government banking, the banks assume more risk and therefore aren’t able to offer as competitive rates. 
  • Standard Qualification
    • Much stricter qualification procedures which often times puts homeownership out of reach for some homebuyers.

Loan Limits

If you’re a veteran, and have never used your VA loan entitlements, you can borrow as much as a lender is willing to extend, without a down payment. The loan limits for VA Home Loans come into play when buyers have less than their full entitlement. Either because they’ve currently have an active VA loan or they’ve lost a previous one to foreclosure. If you’re curious to see if VA loan limits affect you, please email us contact@chaoshomeloans.com

Funding Fees

The VA funding fee is directly contributed to the VA to ensure the program continues to run for future generations of Veterans and military homebuyers. Depending on the borrower’s circumstances, the fee varies. Veterans with service connected disabilities are not required to pay the fee. If you’re using your VA benefits for the time, the funding fee is typically 2.3% of the purchase price of the home. For each subsequent use after that, the fee is 3.6%. Veterans are able to roll the funding fee into their total loan amount. The VA also put limits on closing costs for veterans and allows sellers of to pay most or all of the expenses. At Chaos Home Loan, nearly 90% of our borrowers are able to purchase a home with no money due at closing.