VA Loans, Your Zero Down Mortgage Option

BUYING A HOME WITH A VA BACKED LOAN - YOU SERVED OUR COUNTRY WITH HONOR. Now let the VA Loan program pay tribute to your service. 

The U.S. Department of Veterans Affairs (VA) helps active-duty military members, veterans and surviving spouses buy homes. The VA guarantees part of the loan, making it possible for lenders to offer some special features. VA loans come with competitive interest rates and require no down payment.  VA Loans are guaranteed by the U.S. Department of Veterans Affairs, also known as a government loan. 

• VA purchase loans allow eligible Veterans 100% home financing
• No monthly mortgage insurance premiums
• Streamline refinancing available
• No down payment required for qualified borrowers
• Up to 100% seller paid costs on purchases
• No prepayment penalties

You aren’t required to pay for PMI/Private Mortgage Insurance, and a minimum credit score isn’t needed for eligibility.  The VA advantage:  If  it becomes difficult to make payments on the mortgage, the VA can negotiate with the lender on your behalf. 

Am I eligible for a VA-backed purchase loan?  All of these must be true. You:

• Qualify for a VA-backed home loan Certificate of Eligibility (COE), and
• Meet our—and your lender’s—standards for credit, income, and any other requirements, and
• Will live in the home you’re buying with the loan

• No down payment as long as the sales price isn’t higher than the home’s appraised value (the value set for the home after an expert reviews the property)
• Better terms and interest rates than other loans from private banks, mortgage companies, or credit unions (also called lenders)
• The ability to borrow up to the Fannie Mae/Freddie Mac conforming loan limit on a no-down-payment loan in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.
  

You do not need private mortgage insurance (PMI) or mortgage insurance premiums (MIP)

• PMI is a type of insurance that protects the lender if you end up not being able to pay your mortgage. It’s usually required on conventional loans if you make a down payment of less than 20% of the total mortgage amount.
• MIP is what the Federal Housing Administration (FHA) requires you to pay to self-insure an FHA loan against future loss. But it's not needed with a VA loan.
• Fewer closing costs, which may be paid by the seller on a purchase.
• No pre-payment penalty fee if you pay the loan off early

What Is An IRRRL?

A VA Interest Rate Reduction Refinance Loan — or IRRRL (pronounced “Earl”) — is often called a “VA streamline refinance” because the lending approval process is greatly simplified. An IRRRL doesn’t require an appraisal or go through the typical VA lender underwriting process. That saves a lot of time, paperwork and fees.

A VA IRRRL is used to refinance one VA mortgage into another. You get a lower rate, lower payment, or both. You can change to an adjustable rate or fixed rate.  IRRRL's are much easier than regular VA loans.

You’ll still need to deal with a Department of Veterans Affairs-approved lender. And the VA is adamant that a refinance must offer you a real financial benefit. That means you’ll need to receive a interest rate or a reduction in your monthly payment. Refinancing your mortgage can be a great way to save on interest. Can you can get a cash-out VA streamline refinance?

The answer is no, but there’s an exception: Up to $6,000 in cash can be taken out from your IRRRL for energy-efficient improvements. A lender may require an energy audit of your home to prove the upgrades will provide a real return on investment. Other than that, there are no other cash-out options on an IRRRL. Your closing costs can be rolled into your loan balance or priced into your interest rate, just like any other VA home loan. 

Use a VA streamline refi to trade your adjustable-rate mortgage for a fixed-rate loan. 

Moving from an ARM to a fixed-rate loan is the one instance when the VA will allow you to increase your mortgage interest rate on a refi. If you want to move to a shorter term — say from a 30-year to a 15-year mortgage — you can do that, too. You’ll save a lot of interest over the life of the loan, but your payment will be higher. A good VA lender will work with you to make sure that any increase in your monthly mortgage payment will still work within your estimated living expenses.

VA IRRRL qualifications and fees
The looser restrictions don’t stop there: You don’t even have to live in the home to qualify for a VA IRRRL. That means you can use it to refinance a house you’re currently renting out. But you’ll need to certify that you previously lived there.

IRRRL churning
Since 2012, the Consumer Financial Protection Bureau has tracked the number of complaints reported by veterans regarding mortgage refinance offers.  Prospective VA borrowers are frequently barraged with direct mail solicitations that look important, time-critical and official. With more lax underwriting and document requirements, many lenders are happy to do VA IRRRL loans — so much so that some lenders would encourage qualified VA borrowers to refinance frequently, sometimes just months after their last refi. This is called “churning.”  

It’s important to understand any loan offer you receive and never rush into making a decision — no matter how good the deal looks.