A VA Loan, or a mortgage backed by the U.S. Department of Veterans Affairs, is an affordable way to purchase a home for many people. This type of loan comes with several benefits, including no down payment requirement and lower credit score requirements. More so, it may be a good way to buy a first home without having had a lot of credit history. However, this is a valuable investment. Anyone that qualifies for it should take the time to learn how to use their loan to get the most out of it.
- 1 First, Know the Details of a VA Home Loan
How to Use a VA Home Loan
- 2.1 Use a VA Home Loan to Purchase Property
- 2.2 Use a VA Home Loan to Build a Home
- 2.3 Use a VA Home Loan to Improve an Existing Home
- 2.4 Get a Cash Back Refinance Home Loan
- 2.5 Buy a Single Family Home with Up to Four Units
- 2.6 Buy a Condo With a VA Approved Project
- 2.7 Buy a Manufactured Home or Lot
- 3 Securing a VA Loan to Get Started
First, Know the Details of a VA Home Loan
There are several key things to know about these loans before deciding to use them.
- A VA home loan is dependent on eligibility requirements. A person must serve in the U.S. Armed Forces for a specific amount of time, depending on if it is wartime or not. Obtaining a Certificate of Eligibility from the VA is the first step.
- Borrowers must still have income. If they are still in the Armed Forces or not, it is critical to maintaining having income that is enough to pay for the home loan’s monthly payment.
- Homebuyers need to choose a lender to help them with the VA loan. The VA itself does not provide these loans. However, private lenders, credit unions, and mortgage companies may qualify to do so.
For those who are interested in using a VA loan, be sure to meet the eligibility criteria before working with a real estate agent or applying for a loan. It’s important to work with a trusted VA-certified lender, too. They can help most homeowners work through the process of obtaining a home loan with much less difficulty.
How to Use a VA Home Loan
There are some limitations but ample opportunities to use a VA home mortgage. It is up to the home buyer to know those options and to work with a lender to make sure specific goals and requirements are met. Here are some ideas.
Use a VA Home Loan to Purchase Property
The most common reason to obtain a VA mortgage is to purchase real estate. This type of program enables a person to purchase land and a home that they plan to live in for the long term. For those who wish to purchase a home, this is one of the best ways to do so for those who qualify. VA home loans offer key benefits to those buying a home, including:
- No down payment requirements (by comparison, some conventional loan lenders require up to 20% of the home’s sale price as a down payment).
- Interest rates and terms may be better with a VA home loan. That may make them more affordable for a home buyer than other types of loans.
- Borrow up to conforming limits set by Fannie Mae and Freddie Mac. Keep in mind that all borrowers must have the financial ability to repay loans – that will ultimately determine how much a person may be eligible to borrow.
- There is no additional cost from private mortgage insurance or mortgage insurance premiums. This may make it more affordable for a home buyer to purchase a home and keep it within their budget.
- The closing costs are lower on a VA home purchase than they are on a conventional home loan purchase. This may save thousands of dollars on the purchase.
A VA home loan is a good option for both those looking to buy their first home or a second, third, or fourth home. It may be possible to use these loans for many needs.
Use a VA Home Loan to Build a Home
In some situations, a home buyer may wish to build their home rather than purchase an existing home. This is an option through a VA home loan for those who qualify. That may make it possible to build a dream home. The VA home loan allows a borrower to purchase the land to build the home on. It then can help to cover the costs of the building process.
Keep in mind that VA home loans can be used by those who are buying a newly built home (no one has lived in it before, but it is fully or nearly built) as well as provide the funds for building the home from the ground up. There are special circumstances and requirements for these loans. For example, the VA home lender may require the builder to be certified or licensed. There may also be several steps in the process, meaning that a construction loan may be necessary. Lenders work with homebuyers throughout the process to ensure they have ample protection throughout the process.
Use a VA Home Loan to Improve an Existing Home
For those who own a home, it may be possible to obtain a VA loan to help update or modernize it. This may be a way to help add an addition to the home, for example. It may be possible to use this type of loan to help expand the home or otherwise significantly renovate it. There are few restrictions on these types of loans.
If the homeowner has an existing loan on the home, equity is a factor. That is, lenders can not lend more than the home is worth in most types of secured loans, like a VA home loan. For those who do have some equity, though, or do not owe anything on the home, it is possible to use these funds for just about any need when it comes to expanding and updating the home. This may include things like adding a bedroom or bathroom. It may mean helping to expand the home outward or upward to add square footage. It may be used to help complete a basement. There is a lot of flexibility in this way.
Get a Cash Back Refinance Home Loan
A cash-out refinance loan is another way to tap into the value of the home through a low-cost loan. This allows the borrower to replace their current loan on the home with a new loan that has different terms and qualifications. Keep in mind that homeowners who own their home may also have equity in it. That means they may be able to refinance the existing loan to get a new loan and terms and then borrow additional money from the equity in the home. Doing this can open the door for a new loan that better fits a person’s needs and provides money to do other things.
If a homeowner is using a cash-out refinance loan to obtain additional money beyond their existing mortgage payment, there are many ways to use those funds. This is where it becomes possible to use a VA home loan for benefits. Some ideas may include:
- Borrowing extra money to pay down higher-interest debt, such as credit cards or other types of unsecured loans, may be one option. Keep in mind this carries additional risk. A VA loan is backed by the value of the home, whereas there is less risk of losing a home from not repaying credit cards on time.
- Use the funds to help with remodeling or updating a home. This may be one way to help modernize the home. Make various changes to the home with a low-interest loan to do so.
- Use the money to simply get into a shorter-term or lower costing loan. If interest rates have improved since the homeowner purchased the home, refinancing may help to reduce costs significantly. That may mean a lower monthly payment on the loan as well.
There are few restrictions on how a homeowner can use the cash from this type of refinancing opportunity. However, it may not be available to all borrowers. Generally, a person needs to qualify for the VA loan but also have enough equity in the home to make it possible. That depends on how much of the home’s value is still under a mortgage. Keep in mind that home values may rise over time, creating more equity.
Buy a Single Family Home with Up to Four Units
For some people, the use of a VA loan can provide a bigger opportunity. That may include creating an opportunity for rental income. A VA home loan is typically available to those who live on the property. That is, it is not often available as a way to buy rental properties that the home buyer does not plan to live in full time. However, it may be possible to purchase a single-family home that has up to four units.
It is possible for the borrower to purchase a home, live in one of the units, and rent out the other three. If this is the goal, it is important to communicate that with the lender of the loan upfront. This may be necessary to ensure there is clarity on how the home will be used. Some lenders may have restrictions on these types of loans that go above and beyond what is set by the VA itself.
Buy a Condo With a VA Approved Project
It is possible to purchase a VA loan to purchase a condo. The lender needs to ensure the condo is in an approved complex for those who want to purchase a condo. There are many condo developments across the country that meet these approvals. If the one that the homeowner wants to live in is not listed, it may be possible to get it listed with the help of the owner.
The VA wants to ensure that the property is in good condition and well maintained. That helps to protect the value of the condo for years to come. If the property is not maintained properly, that could lead to a drop in value. Most often, condo developments that are modern and well maintained will meet these criteria.
Keep in mind that the VA loan is available for a primary home. That is, it is not possible to use a VA loan to obtain a condo on the beach to use as a second home. For the buyer that wants to live on the beach full time, on the other hand, this could be a viable option.
Buy a Manufactured Home or Lot
From small, manufactured homes to larger homes, this style of property is becoming more readily available today than ever. A VA home loan is available for both manufactured homes as well as modular homes. Most of the time, either brand new or existing homes like this can be purchased using a VA home loan.
There are often restrictions on this process, though. For example, most of the time, the manufactured home must be attached to the home buyer’s land. It is possible to obtain a VA loan to cover the purchase of the land and the property. However, there may be some difficulty in obtaining the loan for the home alone in situations where the land is rented.
Like with all property, the VA wants to ensure these homes are safe and well maintained to protect their investment. Be sure to work with the lender to ensure the value of the property meets the expectations of the loan and the VA’s other requirements.
Securing a VA Loan to Get Started
For those who are interested in obtaining a VA loan, it is first important to obtain eligibility from the local VA office as a first step. From there, lenders can begin to offer support no matter what type of investment property the home buyer is considering. That may include a wide range of uses like those mentioned here and potentially others.
Lenders can answer questions about specific properties and requirements set by the VA. Remember, too, that lenders have their own requirements that must be met in order for a borrower to qualify for them.