VA purchase loans are loans made by private lenders and supported by the US Department of Veterans Affairs (VA).
With a VA home purchase loan, eligible U.S. veterans, active duty service members and surviving spouses can purchase their own home.
Like other types of VA loans, VA purchase loans show special benefits eligible for regular home loans, including competitive interest rates and more flexible loan results and lower repayment requirements than conventional loans.
What can you do with a VA purchase loan?
VA purchase loans are a great option for first-time or experienced homeowners to qualify for VA borrowers in the market.
If you increase the reliability of the property, you can use a VA mortgage to cover the cost of a home, build one, or upgrade an existing home.
What can you buy with a VA loan?
The Department of Veterans Affairs has special guidelines on what types of property can be purchased with a VA purchase loan.
First, the property must be the borrower’s first home or close family (spouse or children). This means that investment assets are not eligible unless the borrower lives in the home.
Second, VA purchase loans can only be used for authorized asset types. Acceptable assets approved for VA purchase loans include:
- Single family home, up to 4 rooms
- Manufactured house or lot
- Condo in a VA-approved project
- New home construction
Finally, in order for a property to be approved by VAA, it must meet the Agency’s minimum asset requirements (MPRs) to ensure a ready and safe investment. MPAs are generally evaluated during the VA assessment process.
Some minor asset requirements for VA loans include:
- Adequate living space
- Have safe and adequate pedestrian or vehicle access
- Reliable and practical drainage systems
- Safe topography (to prevent mudslides, flooding or sinks)
- Pest free, rotten or fungus
- Have a practical heating supply
VA loan benefits
VA mortgages offer a variety of benefits over conventional mortgage loans.
Although the Department of Veterans Affairs does not initiate loans, it guarantees VA. VA is the amount of dollars that your VA lends to your lender when you do not process your loan. Overall, the VA promises a loan rate of up to 25%.
In turn, VA guarantees the confidence of private lenders to provide exclusive benefits to eligible VA borrowers, including non-lending and competitive interest rates and terms.
Some of the benefits of VA purchase loans are as follows
There are no loan restrictions
VA borrowers with full rights do not have credit limits. VA entitlement refers to the amount of dollars that the Department of Veterans Affairs verifies in your VA loan. If you are not defaulting on your loan, VE will pay your lender the amount of dollars you owe.
If you get less than full entitlement, you can borrow up to your county’s free credit limit. Meeting credit limits is set annually by the Federal Housing Finance Agency (FFA), and includes general and high-cost loan restrictions in the United States.
If you save money, you may be able to borrow more than is appropriate for your county loan. Credit limits may change from year to year, so be sure to check with FHFA.
There is no prepayment
As long as the purchase price does not exceed the estimated value of the home, you can avoid the down payment. However, prepayment on a VA loan can reduce your interest rate and the total cost of the loan.
Competitive interest rates
The U.S. Department of Veterans Affairs guarantees a portion of your loan to private lenders, so you take less risk as your borrower. As a result, VA loans often show lower mortgage rates than conventional loans.
There is no mortgage guarantee
VA purchase loans do not require private mortgage insurance (PMI) or mortgage insurance premium (MIP). Instead, you must provide a one-time payment to the Department of Veterans Affairs with VA funding.
VA funding can range from 1.4% to 3.6% of the purchase price. Cash payments can be paid in advance or rolled into your monthly mortgage payments. In some cases, such as permanent disability, VA funding may be waived altogether.
Low closing costs
Closing costs for VA loans generally range from 3% to 5% of the total cost of the loan. With VA Purchasing Loans, you will have an unwanted benefit that you will not have to pay in advance or pay off mortgage insurance.
Under the VA, sellers can contribute up to 4% of your loan closing costs. VA loans on VA loans may include VA cash payments, loan balances, prepayment taxes and payments on property or mortgage points.
There are no advance penalties
Unlike conventional loans, government-sponsored VA, USDA and FHA loans do not charge advance penalties. Prepaid penalties are some lenders that pay off your mortgage – or part of it – in advance.
Since it is a VA loan article, I think we are also going to omit the explanation of how prepayment penalties apply to regular loans.
Easy to renew
Adjusting your VA loan with interest-bearing loan (ARRL) is easier than repaying a regular home loan. IRRRL loans, often called VA “Referral Improvement” loans, have a simple sub-process designed to reduce fees and time.
Generally, VA amendments do not require a VA review or much paperwork to be approved. VAA uses the document on file to easily speed up the pre-writing process.
Eligible borrowers apply for a VA cash withdrawal loan. With VA Refinance, you can re-upgrade your existing loan-VA, conventional or FAA, as long as you meet military service requirements.
Unlike IRRRL, to qualify for a VA cash release loan, you must have your home assessed and meet both lender and VA eligibility requirements.
If you are interested in refinancing your VA loan, read How to Redeem VA Loans for more details.
As long as you meet the eligibility requirements set by the VA, VA insurance is a lifelong benefit that you can often use.
Requirements for VA Purchase Loans
To qualify for a VA loan, you must meet certain service requirements.
These depend on whether you are a veteran or active duty member or a member of the National Guard or Reserve.
Members of the military
To qualify for a VA Purchase Loan, you must serve after September 1940, and be in active duty for 90 days during a war or 181 consecutive days during a period of peace.
If you have served below the minimum active duty requirement, you must resign for service-related disability.
National Guard and Military Reserve Members
According to the VA, the National Guard and Reserve members are eligible for a 90-day active duty and –
- Have a dignified drain or
- On the “pension” list or
- Moved to a backup or other ready-made backup near a reputable service or selected backup repository or
- Still serve in the selected backup
If you meet the basic service requirements for a VA purchase loan, your COE will include details of eligibility and eligibility.
Finally, eligible candidates must meet their lender’s special income and loan requirements to be eligible for a VA purchase loan.
Direct Home Loans for Native Americans
The U.S. Department of Veterans Affairs has developed a program to build, purchase, or upgrade a home on federal trust land for Native Americans with veterans or Native Americans.
To be eligible for the NADL program, the home must be your primary residence. Your tribal government must also enter into a MOU with the VA and provide documentation of how the program operates on federal trust lands.
Like other VA loans, borrowers must be able to have a valid VA certification, cover mortgage payments, and meet VA credit requirements to be eligible for the NADL program. NADLs have many benefits, including prepaid, PMI, low interest rates and closing fees.
NADL loans are lifelong benefits, meaning they can be reused. You can also refinance NADL loans under the VA mortgage program.
Other VA mortgage options
If you are already a homeowner, there are several upgrade options supported by the U.S. Department of Veterans Affairs:
- Cash withdrawals; Allow your peers to withdraw cash.
- Interest Rate Improvement Loan (IRRRL) Also known as Adjustment Mortgage, this type of mortgage allows you to refinance your mortgage to get lower interest rates and lower or more stable monthly payments.
Summary of financial guidelines for VA purchase loans
VA purchase loans are federally funded loans for veterans, veterans and military spouses who are looking for unpaid loans with interest rates and terms.
VA purchase loans offer different benefits than conventional loans, but are still offered by private lenders. This means that veterans and service members must meet the eligibility requirements set by the VA lender.
Shop around to get the best VA loan rates before you take any further action and compare mortgage lenders.