VA Loan or Mortgage

Definition

A VA loan or mortgage is a type of home financing option available to qualifying U.S. military veterans, active-duty service members, and certain members of the National Guard and Reserves. The key feature of a VA loan is that it is partially guaranteed by the U.S. Department of Veterans Affairs (VA), which allows lenders to offer more favorable terms, such as no requirement for a down payment and reduced interest rates.

Examples

John, a retired Navy sailor, wishes to buy a home. John applies for and receives VA loan eligibility from the U.S. Department of Veterans Affairs. He is able to secure a favorable mortgage from a private lender without putting any money down.
Samantha, an active-duty Army officer, wants to refinance her existing home loan to take advantage of lower interest rates available in the market. She opts for an Interest Rate Reduction Refinancing Loan (IRRRL) through the VA, which streamlines the refinancing process and reduces her monthly mortgage payments.

Frequently Asked Questions (FAQs)

1. Who is eligible for a VA loan? To be eligible for a VA loan, individuals must be veterans, active-duty service members, or certain members of the National Guard and Reserves. Specific eligibility criteria involve a minimum service requirement and honorable discharge conditions.

2. What are the benefits of obtaining a VA loan? VA loans offer lower interest rates, no mandatory down payment, no private mortgage insurance (PMI), and easier qualification standards when compared to conventional loans.

3. Do VA loans have a funding fee? Yes, VA loans generally include a VA funding fee that varies depending on the type of loan, the down payment amount (if any), and whether it is the borrower’s first VA loan or subsequent use. This fee helps sustain the VA loan program.

4. Is it possible to use a VA loan more than once? Yes, eligible applicants can use a VA loan benefit multiple times, subject to staying within their entitlement limits and typically after refinancing or paying off the existing VA loan.

5. Can the VA funding fee be waived? Under certain conditions, such as receiving disability compensation from the VA or being a Purple Heart recipient, an applicant may qualify for a waiver of the VA funding fee.

Certificate of Eligibility (COE): A document issued by the VA that confirms a borrower’s eligibility for a VA loan based on their military service record.
Interest Rate Reduction Refinance Loan (IRRRL): Also known as the VA Streamline Refinance, this type of loan offers an opportunity to refinance an existing VA loan with minimal documentation and often without an appraisal.
Entitlement: The maximum loan amount the VA will guarantee, broken down into basic and bonus entitlements which can impact loan eligibility.
Funding Fee: A percentage of the loan amount paid to the VA to help fund the program, typically rolled into the loan balance.

Online Resources

References

U.S. Department of Veterans Affairs. “VA Home Loan Guaranty Program.” VA.gov.
Consumer Financial Protection Bureau. “Your Home Loan Toolkit - A Step-by-Step Guide.” CFPB.gov.
Military.com. “VA Loan Overview.” Military.com.

Suggested Books for Further Studies

“The VA Loan Book: A Step-by-Step Guide to Buying a Home with a VA Loan” by Ralph R. Roberts
“The Complete Guide to FHA & VA Loans” by David Reed
“VA Loans For Dummies” by Michael E. Coleman

Real Estate Basics: VA Loan or Mortgage Fundamentals Quiz

### Who guarantees a VA loan? - [ ] Private lenders - [ ] The Federal Reserve - [x] The U.S. Department of Veterans Affairs - [ ] Local government agencies > **Explanation:** The VA loan is guaranteed by the U.S. Department of Veterans Affairs, not private lenders or other government bodies. ### Do VA loans typically require a down payment? - [ ] Yes, a 20% down payment. - [ ] Yes, but only a 5% down payment. - [x] No, they typically do not require a down payment. - [ ] Yes, depending on the loan amount. > **Explanation:** One of the main benefits of a VA loan is that it commonly does not require a down payment, making homeownership more accessible for eligible veterans and service members. ### Who can apply for a VA loan? - [ ] Any U.S. citizen - [ ] Only civilians - [x] Veterans and active-duty service members - [ ] Only current military personnel > **Explanation:** VA loans are specifically designed for veterans, active-duty service members, and certain members of the National Guard and Reserves—meaning it is not open to all citizens or civilians. ### What is the main benefit of VA loan refinancing known as IRRRL? - [x] Lower interest rates and simplified documentation - [ ] Increased loan amount without justification - [ ] Removal of all loan fees - [ ] Conversion to a 10-year mortgage term > **Explanation:** The Interest Rate Reduction Refinance Loan (IRRRL) allows for lowering interest rates with minimal documentation which eases and speeds up the refinancing process. ### What types of properties can be financed with a VA loan? - [x] Primary residences - [ ] Investment properties - [ ] Second homes - [ ] Vacation homes > **Explanation:** VA loans are specifically intended for the finance of primary residences, and cannot be used for purchasing investment properties, second homes, or vacation homes. ### How does the VA funding fee support the VA loan program? - [ ] By increasing the loan interest rate - [ ] By funding administrative services - [x] By helping sustain the VA loan program - [ ] By raising capital for community projects > **Explanation:** The VA funding fee helps to sustain the VA loan program in providing benefits to veterans and service members without taxpayer financing. ### Under what circumstances may the VA funding fee be waived? - [x] When the borrower receives disability compensation from the VA - [ ] When the borrower has a high income - [ ] When the property has been appraised recently - [ ] When refinancing from a conventional mortgage > **Explanation:** The VA funding fee may be waived for borrowers receiving disability compensation from the VA or for Purple Heart recipients, offering additional support to eligible veterans. ### Can VA loan benefits be reused? - [ ] No, they are a one-time benefit. - [ ] Only if the property is sold within a year. - [x] Yes, subject to entitlement limits and certain conditions. - [ ] Only for refinancing purposes. > **Explanation:** VA loan benefits can be reused multiple times provided the borrower remains within their entitlement limits and meets other specific conditions. ### What is essential to qualify for a VA loan aside from military service? - [x] Certificate of Eligibility (COE) - [ ] Recent appraisal report - [ ] Existing mortgage - [ ] Minimum 800 credit score > **Explanation:** Aside from military service, obtaining a Certificate of Eligibility (COE) is crucial to qualify for a VA loan, which confirms their entitlement based on their service records. ### What must be demonstrated to obtain an IRRRL? - [ ] Equity exceeding 50% - [ ] Third-party guarantee - [ ] Proof of military awards - [x] Prior VA loan > **Explanation:** An IRRRL is only available to those with an existing VA loan, intended to streamline refinancing of the said loan.