A VA Home Loan is a type of mortgage backed by the U.S. Department of Veterans Affairs. It’s available to current Service Members, Veterans and Eligible Surviving Spouses. VA Home Loans offers several benefits and flexible guidelines.
Benefits of a VA loan:
- Negotiable interest rate
- Closing costs comparable—and sometimes lower—than other financing types
- No private mortgage insurance (PMI) requirement
- Right to prepay loan without penalties
- Mortgage can be taken over (or “assumed”) by the buyer when a home is sold.
- Counseling and assistance available to veteran borrowers experiencing financial difficulty or facing default on their loan.
VA loans are provided by regular lenders to eligible veterans for the purchase of a home, but are guaranteed by the U.S. Department of Veteran Affairs. The guaranty means the lender is protected against loss if the borrower fails to repay the loan. In addition to not requiring a down payment in most cases, a VA guaranteed loan usually receives a lower interest rate than other types of loans.
Although mortgage insurance is not required, the VA charges a funding fee to issue a guarantee to a lender against borrower default on a mortgage. The fee may be paid in cash by the buyer or seller, or it may be financed into the loan amount.
A VA loan can be used to buy a home, build a home and even make improvements to a home such as solar heating or cooling systems, water heaters, insulation or other energy efficiency improvements approved by the lender and VA.
Veterans can apply for a VA loan with any mortgage lender that participates in the VA home loan program. A Certificate of Eligibility from the VA must be presented to the lender to qualify for the loan.
Veteran’s Affairs Loan Limits
The VA does not set a limit on the amount of a mortgage. However, there are limits on the amount of liability the VA assumes, which often determines the amount of money a financial institution will lend.
Veteran’s Affairs Loan – Funding Fee Chart
To see the latest Loan Fee Structure for VA Loans, please see the Funding Fee Table on the VA website.
VA Loan Options
Similar to a Conventional Jumbo Loan, a VA Jumbo Loan is for an amount higher than the standard conforming loan limits established by Fannie Mae and Freddie Mac. In most counties, jumbo loans are greater than $417,000.
Lender Credit Option
For borrowers who are interested in a VA loan while keeping closing costs to a minimum, discuss the Lender Credit Option with your lender. This credit reduces out-of-pocket charges, but will generally result in a higher interest rate on your loan.
If you are a first-time home buyer or have low-to-moderate income, FHA Loans may be right for you.
FHA loans are also good for borrowers with limited cash on hand or minor credit problems.
With low down payments and below-market interest rates, government insured loans usually have easier credit and income guidelines.
Loans from the Federal Housing Administration allow qualified borrowers to purchase a home with a down payment as low as 3.5% of the purchase price. Available as a fixed loan and adjustable-rate mortgage, FHA loans are also offered as graduated payment mortgages and growing equity mortgages. These options are good for borrowers who expect their monthly earnings to increase over time. In addition, the Energy Efficient Mortgage program allows borrowers to include the cost of energy efficiency improvements.
FHA County Limits
The maximum mortgage limits set by the Federal Housing Authority vary by state and county. To find out what limits are set in your area, required down payment amounts, and current FHA rates, contact Trident Home Loans.
FHA Funding and Mortgage Insurance Fees
Federal Housing Administration Loans incur fees that are specific to the FHA. These are known as the Up-Front Mortgage Insurance Premium, or UFMIP, and the Mortgage Insurance Premium, or MIP. These fees protect the lender from loss and must be paid on loans backed by the FHA.
As the name implies, the UFMIP is due at closing, although the FHA allows this fee to be rolled in to the mortgage. The MIP, which is held in an escrow account, is included in your monthly mortgage payment. The MIP is included in your regular monthly mortgage payments. The fee varies based on the mortgage total, the term length, and the amount of your down payment.
The USDA offers benefits to qualified applicants looking to purchase rural and agricultural property in specific areas. Also referred to as the USDA Rural Development Guaranteed Housing Loan Program, USDA loans offer low mortgage interest rates even when the borrower does not make a 20% down payment.
Similar to FHA and VA loans, the US Department of Agriculture Loan Program guarantees mortgages issued by a participating lender. This guarantee allows lenders to offer rural borrowers lower mortgage interest rates than conventional loans. While the program does not require a down payment, borrowers who do not must pay a mortgage insurance premium.
To qualify for a USDA Loan, applicants must meet income limits that vary by location and household size. For more information on these income limits in your area, check the latest USDA Guaranteed Housing Program Income Limits map and information table.
USDA Loan Program Criteria
USDA-guaranteed home loans are limited to owner-occupied, primary residences in eligible areas. To see if the home or property you wish to purchase is in a USDA-approved area, consult the USDA Income and Property Eligibility Site. https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do
Additional requirements for a USDA Loan:
- Applicants must have current U.S. citizenship or permanent residency
- Total monthly payments, including insurance, principal, taxes and interest, may not exceed 29% of monthly income
- Additionally, all other monthly debt payments must total less than 41% of your income.
- Applicants with a credit score of credit score above 660 or higher may have these minimum debt ratio requirements waived by the USDA
- Applicants must show steady income over the prior two years
- Applicants must have acceptable credit history and no accounts sent to collections in the past year
- NOTE: Exceptions may be made for applicants whose credit suffered from a temporary problem such as a medical emergency or other circumstances they could not control. Speak to your Trident Home Loans representative to discuss your situation.
- Preference is given to applicants without “decent, safe and sanitary housing,” and those unable to secure a traditional home loan from traditional sources
USDA Funding Fee and Mortgage Insurance Fees
Beginning on October 1, 2016, the USDA program reduced the guarantee and annual fees amounts. To see the latest information and specific program details, please consult the USDA Guaranteed Home Loan Program Newsletter.