VA loans are loans guaranteed through the U.S. Department of Veterans Affairs. Those who are active duty or honorably discharged service personnel may qualify for these loans. The loans may be used to purchase or build a home. They may also be used to refinance an existing loan. The VA does not provide the loans directly to the consumer. Rather, it provides an insurance policy, or guarantee, to the lender. If the homeowner defaults on the loan, the lender will submit a claim to the VA for up to 50 percent of the borrowed principal on the loan.
VA Home Loan
The VA home loan is available for new home purchases. It is an ideal choice for those who are buying their first home. It may be used on preexisting homes and manufactured homes. It can also be used to purchase land. No down payment is required in most cases. Up to 100 percent of the value of the property can be financed. No mortgage insurance premium is paid by the home buyer. These loans are traditionally 30-year loans at a fixed rate. Interest rates are lower than traditional loans.
Refinancing VA Home Loans
VA home loans can be refinanced into another VA loan. For example, if a qualified VA lender offers a lower interest rate on a home loan, the home owner may wish to refinance into that lower interest rate loan. You can refinance a current VA loan as long as there is enough equity in the property. The owner may refinance up to 90 percent of the appraised value of the home. Closing costs can be rolled into the loan.
VA Streamlined Loan
In some cases, a VA streamlined refinance is a good option. In this particular loan, less documentation is needed to refinance the loan. It is generally used to simply reduce the interest rate being paid on the loan. The VA does not require an appraisal, but some lenders may. It is unlikely that credit reports or employment documentation will be required. You may not take cash out of the property with this format.
VA Construction Loans
Those who wish to build their own home will find the VA construction loan an ideal fit. The builder must be willing to carry all costs until the home construction is completed. It is up to the lender's discretion (not the VA) to determine if funds can be advanced during the construction process. Once the home is built, it must pass all required VA inspections and appraisals to be guaranteed through the VA program.
VA Hybrid ARM Loan
The VA Hybrid ARM, or Adjustable Rate Mortgage, provides an initial period of fixed interest for three to five years. At that point, it adjusts annually up to one percent annually. There is a five percent interest rate cap over the life of the loan. The rate may not adjust more than five percent, up or down, on the loan. This type of loan may be used to purchase a home. The rate will fluctuate over the life of the loan according to the one year Constant Maturity Index.