Overview of VA Loans

VA Loans

VA is an abbreviation for Veterans Administration. Veterans is a term used in the United States for citizens who have served in the United States Armed Forces. VA Loans is a mortgage loan program under the ownership of the United States Department of Veterans Affairs and managed by Veterans Administration. The objective of this department is to help the US veterans and their families obtain a loan for the purpose of buying a home. The loans however are arranged by banks or financial institutions and the Veterans Administration itself does not provide the loans. The objectives of setting up the Veterans Administration are three fold:

o Ensure all the veterans have complete papers to apply for VA loans. Determine all those people who are qualified to obtain a loan under this category. In order to qualify for a VA loan, the borrower shall have to provide the lender with a formal proof of his working with the US armed forces.

o Formalize the term and conditions of the mortgage offer and

o Ensure there are no defaults against VA loans. The VA loans are guaranteed by the United States government and hence have nil probability of default. This guarantee is off course subject to certain safeguards for the government such as evaluating the credit rating of the veteran. This essentially means establishing that the veteran has the necessary credit rating and financial strength to support for payment of the mortgage.

The Veterans Administration charges a funding fee ranging from 0-3.3% of the value of the loan. One is also allowed to take a loan to finance this funding fee as well. There are a host of advantages that accrue to US citizens who avail VA loans. There is no prepayment penalty against these loans. One does not have to undertake a private mortgage insurance against this loan. The loan is at rates less than the rate at which mortgage loans are available to non-veterans. As long as it is proved beyond doubt that one is a US veteran, other qualification and eligibility criteria are easier compared to conventional loans.

In order to apply for a VA loan, the most important requisite is the possession of a veteran's certificate of eligibility and the VA-assigned appraisal. The possession of the certificate of eligibility in itself does not imply that one would be sanctioned a loan, it merely means that one is eligible to apply for a VA loan. Besides these 2 documents, the application process is very similar to other mortgage loans Even the loan processing procedure would be as rigorous as a conventional mortgage loan.

The other notable aspect of VA loans is that it is expected that the VA loan borrower would take the possession of the property within 60 days of the closure of the loan. Hence it is not legal to rent out the property purchased by way of VA loan arrangement. While availing the VA loans, one has to certify that the property is being for self consumption and is for personal use only.