The United States government offers numerous home loans for veterans and their families looking to purchase a home. Loans for veterans are often available with lower interest payments, less strict eligibility requirements and fewer overall expenses. They may vary in function, from helping with home purchases to funding home modifications for disabled individuals.
Some are VA loans limited to veterans and military members. However, veterans also have access to standard federal loans that may provide additional benefits. Before purchasing a home, veterans should explore the loan options available to them and determine which option can get them a suitable home for a suitable price. The available loans have different pros and cons. The sections below describe VA home loans and federal loans available to U.S. veterans.
The Department of Veterans Affairs (VA) offers numerous VA loans for those looking for homeownership financing. These loans enable veterans to purchase homes at lower interest rates than they get would from other financiers. The sections below describe loans offered by the VA for veterans.
This VA loan comes with terms favorable to veterans, including no down payment, no mortgage insurance requirements, a limit for closing costs and more. This loan can be reused multiple times and is not limited to first-time homeowners. However, there are regulations regarding what kind of home can be purchased with this housing loan and what condition the home must be in. There are also eligibility requirements associated with this loan, including:
Although this VA home loan is appealing to many veterans, using it can be difficult. Because of the closing cost requirements, along with other regulations around the loan, homeowners may find it simpler to sell to non-VA backed buyers. Homebuyers may want to consider this factor when debating whether to obtain this loan.
The VA home loan cash-out refinance option allows individuals to take cash from a home’s equity. However, taking cash out is not the only reason to use it. This option can help turn a non-VA loan into a VA-backed loan for individuals who wish to change the terms of their mortgage. This option can lower the interest rate a veteran is paying on his or her mortgage and make the loan more affordable.
The IRRRL is used to achieve lower VA mortgage rates. Considered a VA-to-VA loan, this is available to those who have purchased a home with a VA-backed mortgage in the past. Generally, this arrangement can lower the required interest payment with no out-of-pocket expenses. However, when refinancing from an adjustable-rate mortgage (ARM) loan to a fixed-rate loan, the interest rate may rise instead.
This VA home loan is available to Native American veterans to purchase, build or renovate homes on Federal Trust Land. These loans come with an interest rate of about 4.75 percent. The rates change in correlation with market trends. It is a fixed-rate 30-year mortgage. Individuals who use this loan do not have to pay for mortgage insurance and have reduced closing costs. The benefit can be reused again, similarly to the standard VA purchase loan.
In addition to the VA home loans, veterans looking for assistance in their loan search also have federal options to turn to. These loans are available to the general public rather than restricted to military veterans. As a result, they may not waive as many fees or lower the interest rate as much as a VA loan would. However, they can still help make homeownership affordable for military families. The following federal home loans are available:
Individuals can get a home loan that is backed by the Federal Housing Administration (FHA). These loans have looser requirements for down payments and minimum credit scores, which means this option is accessible to people who may otherwise be turned down for loans. For example, an FHA loan requires a credit score of 500 and a down payment between 3.5 and 10 percent.
A conventional loan has a minimum credit score requirement of at least 620, and down payments for such loans should be between 3 and 20 percent. The FHA loan option is popular among first-time home buyers. Veterans who have trouble getting someone to accept their offer with a VA loan may have an easier time with an FHA loan. Although the upfront financial terms may be less appealing, choosing a loan backed by the FHA can save time and money in the long run.
If a veteran’s property is destroyed in a natural disaster, he or she can apply for a home loan of up to $200,000 to repair or replace it. This loan is only available in the aftermath of a disaster declaration in a county. Individuals who live in a county where no disaster declaration was issued are not eligible. Collateral will be requested to issue the housing loan. However, the Small Business Administration (SBA), which operates the loan, will not turn applicants down for lack of collateral. Veterans can use this option if a disaster has significantly damaged or destroyed their home.
The rural housing loan is available to very low- to moderate-income residents in rural areas of the country. To qualify, individuals should have an income between 0 and 115 percent of the area’s median income. The loans allow individuals to purchase, create or renovate a home. These programs help revive rural communities and minimize the transfer of individuals to urban areas where more construction may exist. Veterans that live in rural areas can take advantage of this program to remain in the county rather than relocate.