Things You Need To Understand About VA Loans

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The government has a program to help veterans buy a home with a lower interest rate and no money down. VA loans are available for any person who served in the military for a minimum amount of time and left service with anything other than a dishonorable discharge. However, many people are confused as to what this type of loan is and how it benefits them. Here is some information that should help you to understand what this type of financing can and cannot do for you.

Loan Funding

A VA loan is not funded by the government or any government agency. They simply guarantee a portion of the loan so that if you should default on the payments the lender will receive the amount that was guaranteed. Generally, this is 25 percent of the loan, or what many would consider being the down payment. Since 1/4 of the loan is guaranteed, the lender is not risking as much and will, therefore, offer a lower interest rate. You will still need to find a mortgage lender.

Credit Score

The Veteran's Administration (the agency that handles these loans) does not require any specific credit score for the guarantee. However, the lender will. Because the VA is backing the loan, the lender may lighten their requirements so that you can still qualify even if you have a lower credit score. This will be up to the lender so if you are turned down by one company, you should apply elsewhere as there may be a company with less rigid requirements.

Down Payment

Here is where things get a bit tricky. The VA will guarantee up to 25 percent of the loan, however, there will be a limit that depends on where you live. VA lenders will consider this and not require a down payment from you. This does not mean that you will not owe this money, it just means that you do not have to come up with it to get the loan. For example, if you are buying a home for $100,000, the VA will guarantee $25,000 of it. This gives the lender a bit of security so they will not demand a down payment, which would generally be 20 percent of the loan, or in this case $20,000. Everything else looks good and the loan is approved. The loan amount is the full amount, or $100,000. The VA guarantee does not mean that you only owe $75,000.

While it may not seem like you get much from a VA loan, try coming up with the 20 percent you need for a down payment. Sure,  you will still owe the whole amount and be charged interest on it, but in most cases, the interest rate will be lower. If you have served in the military, take advantage of a VA loan and become a homeowner.


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