The 4 Types of VA Loans: Which One is Right for You?

Dec 08, 2019

Veteran homelessness

Serving your country is a noble albeit thankless job. Upon years of service, thousands of veterans return and find themselves without a home. Data from the National Alliance to End Homelessness shows that as of January 2018, 37,878 veterans were homeless. Veterans make up 9% of the adult homeless population. Aside from economic hardship, veterans must also deal with several and prolonged deployments, finding housing stability even harder to come by. Post-9/11 veterans face more of a conundrum than older generations of veterans who have secure homeownership rates and less housing cost burdens. A study by Apartment List shows that 35% of post-9/11 veterans are cost-burdened, compared to those who served in previous wars.

Collaborative efforts

Efforts to eradicate or lessen veteran homelessness have been the focus of several organizations. Building Homes for Heroes and Habitat for Humanity’s Veterans Build similarly build or modify homes for veterans, mortgage-free, gifting 30 and over 180 homes respectively in the past year. While these non-profit organizations are doing their part selflessly, changes must be made structurally. Veterans need help in reentering both the labor and housing markets. Recognizing this, many organizations have also begun trying to educate veterans about financial planning, driving up the market for financial planners. The U.S. Bureau of Labor Statistics projects that jobs for financial planners will grow by 30% from 2014 to 2024. Most services offered to veterans include not just help in securing homes and jobs, but also in managing their finances for long-term returns. The government itself has introduced some of these services that can help veterans struggling to get back in the market.

Qualifying for VA loans

G.I. Bills have taken these issues into account and have included housing allowances in their legislation. VA loans have become a big source of relief for veterans. One of its biggest advantages is that there is no down payment required. Veterans can also avoid steep mortgage insurance fees, have access to lower loan rates, and increase their buying power. VA loans do not expire and you are entitled to use your benefit more than once. Surviving spouses of veterans may also be eligible for these loans. VA loans also have more lenient guidelines for lower credit scores, bankruptcy, and foreclosure and do not disqualify applicants. To help future generations of veterans, VA issues a funding fee between 0.50-3.3% to defray the program’s cost while making homeownership sustainable for future veterans. There are four VA loans to choose from depending on your eligibility.

1. Purchase Loans

Purchase loans allow for competitive interest rates from lenders. To be eligible, you must qualify for a VA-backed home loan Certificate of Eligibility (COE). You must meet the lender’s standards for credit, income, and any other requirements, and also live in the home you are purchasing.

2. Cash-out Refinance Loans

This type of loan allows you to replace your current loan with a new loan with different terms. It allows you to take cash out of your home equity or to refinance a non-VA loan into a VA-backed one. The requirements for this loan are the same as those of a purchase loan, and you must live in the home you are refinancing.

3. Interest Rate Reduction Refinance Loans (IRRRL)

IRRRL loans are for those with existing VA-backed home loans who want to reduce their monthly mortgage payments or make payments more stable. You can also replace your current loan with a new one under different terms. These, together with certification that you currently or previously used to live in the home covered by the loan, are the qualification requirements.

4. Native American Direct Loans (NADL)

NADL loans are for veterans who are, or have spouses who are Native American. This allows you to loan, buy, build, or improve homes on Federal Trust Land. You may also get another loan to refinance your existing NADL and reduce interest. To qualify, your tribal government has an agreement or Memorandum of Understanding with VA detailing how the program works on its Trust lands. You must have a VA home loan COE, meet the credit standards, have proof you make enough to pay off the mortgage and other costs, and also live in the home that uses the NADL.

As a veteran or service member, it’s beneficial to consider the array of home types and loan options when shopping for a home.



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