10 Things Many Borrowers Don’t Know About VA Loans

Posted by Chris Birk

For the vast majority of military borrowers, VA loans represent the most powerful lending program on the market. These flexible, no-down payment loans have helped more than 18 million service members become homeowners since 1944.

But even some longtime VA borrowers aren’t familiar with all of the program’s unique benefits and quirks.

Here’s a look at some of the key things service members and their families might not know about VA loans:

1. They’re reusable. You can use your full VA entitlement over and over again as long as you pay off the loan each time.

2. They’re only for certain types of homes. If you’re planning to buy a working farm, a downtown deli or a fixer-upper, the VA loan may not be for you. It’s mainly designed for single family homes in move-in condition.

3. They’re for primary residences only. Don’t bother trying to use your VA loan benefits to buy an investment property or a vacation home in the Poconos. VA loans are for primary residences, with few exceptions.

4. They’re not issued by the VA. The VA isn’t in the business of issuing home loans. Instead, the agency provides a guaranty on each qualified mortgage loan.

5. But they’re guaranteed by the government. If you have a VA entitlement, the agency guarantees up to a quarter of the loan amount. The guaranty gives lenders confidence and helps service members secure great terms and rates.

6. They’re available despite foreclosure or bankruptcy. Service members with a history of bankruptcy or foreclosure can secure a VA loan. Even borrowers who have had a VA loan foreclosed on can still utilize their home loan benefit.

7. They come with a mandatory fee. All those great benefits come with a cost: the VA Funding Fee. This fee (usually about 2 percent of the loan amount) helps the VA keep the program going and is required on both purchase and refinance loans. It can be rolled into the loan amount and waived entirely for those with service-connected disabilities.

8. They have limits on co-borrowers. Some loan programs let you get a loan with just about anybody. That’s not the VA loan program. The only acceptable co-borrower is your spouse or another eligible veteran who will live in the home with you.

9. They don’t have mortgage insurance. Mortgage insurance is a monthly fee you pay with other programs when you’re not putting at least 20 percent down. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month.

10. They don’t have a pre-payment penalty. You can make extra payments any time you want, saving you a boatload in interest over the life of your loan. You can even structure your payments to automatically deduct a little extra every month. Just an extra $100 per month can shave years and tens of thousands of dollars from the balance.