How VA Loans Are Different
There Are Some Features and Terms You Should Know
No matter what kind of loan you get, lenders consider your credit score and how much debt you have. Like other loans, you can get a VA loan with different terms, such as 15, 20 or 30 years, and a fixed or adjustable interest rate.
But in some ways VA loans are unique. Understanding the differences will help you be prepared to get the benefits and savings you earn when you serve our country.
How You Can Use a VA Loan
VA loans are meant to be used for buying or refinancing the primary home you and your family will live in, not a vacation home or business property.
If you’re buying a home, let your lender and real estate agent know right away you’re interested in a VA loan and the kind of property you want. Not all lenders finance property allowed by the VA, like a manufactured home or lot. If you want a condo, your agent should know they must be VA-approved.
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You can also use a VA loan to refinance a home. It doesn’t matter if you have a VA loan now or a different kind of mortgage. Just tell a VA-approved lender your refinance goals, such as getting cash back or lowering your monthly payment. They’ll help you understand your VA loan options.
When you buy a home with a VA loan, the VA expects you to be living there within a “reasonable” amount of time after closing. Sixty days is considered reasonable, but that can be extended up to a year. A spouse can meet the requirements if you can’t.
The VA understands service members get relocated, deployed, sent to work overseas or face other delays that prevent moving in. Discuss any concerns about occupancy with a VA-approved lender.
One of the unique benefits of a VA loan is something called entitlement. It’s an amount you’re entitled to use toward buying a house with a VA loan. Entitlement doesn’t mean you won’t need some savings to buy a house. You’ll have to pay closing costs and some other fees. But for most people, it means you won’t need money for a down payment. Learn more about entitlement.
You save with a VA loan because you don’t have to pay mortgage insurance. In exchange, the VA charges a funding fee. It helps cover the cost of the VA Home Loan program.
You may be exempt from paying this fee if one of the following applies to you:
- You have a service-connected disability.
- You receive VA disability or have in the past.
- You’re a surviving spouse who qualifies.
The VA decides if you’re eligible for the exemption. If you’re not, you’ll pay a funding fee each time you get a VA loan. How much you pay depends on the amount of your loan, your military service type, and whether you’ve had a VA loan before. The fee usually costs less than mortgage insurance you’d pay on other loans. Most people have the funding fee added to their loan.
Minimum Property Requirements and Inspections
The VA expects the home you’re buying to be in “move-in” condition: safe, sound and sanitary. So a VA-approved appraiser will make sure it meets the VA’s minimum property requirements, which are pretty basic. Here are some of the requirements:
- Clean drinking water
- The roof can’t have major defects
- Mechanical systems – heating, electrical, plumbing – that work
- Lead-based paint must be scraped and repainted
- Broken windows must be repaired or replaced
When something doesn’t pass, you may be able to negotiate with the seller to make repairs. But overall, if you want a VA loan, you should avoid houses that need a lot of work.
As part of the minimum property requirements, you may need additional inspections and tests. But it depends on the home and where it’s located. Here are a couple of examples:
- A termite or pest inspection is required in most states, but not all.
- If the home’s water supply is from a well, you may need a water test or septic inspection.