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VA loan is an important term to service members and veterans. Bankrate explains what it is.
A VA loan is a mortgage loan that is backed by the U.S. Department of Veterans Affairs. These loans are available to people who are actively serving in the military or who have served and received an honorable discharge. Family members of service personnel also may qualify for a VA loan.
VA loans make it easier for veterans to obtain the financing to buy a house. If the borrower defaults on the loan, the lender files a claim with the VA, and the VA provides a settlement. There are limits, however, on how much liability the VA will assume, which can affect the amount of money a mortgage lender will give a VA loan borrower.
Still, VA loans offer borrowers a number of key benefits, such as:
VA loans are available through approved lenders, and there are many mortgage lenders that are approved to give VA loans. The VA does not loan the money. Borrowers must meet the eligibility requirements of the VA and the mortgage lender.
Christine wishes to buy a home that costs $140,000. She served six years in the Army and was honorably discharged. She decides to apply for a VA loan with a local bank. Christine first contacts the VA to find out more about her mortgage loan benefit. She pulls out her DD214 military discharge paper, as well as other documents she knows the lender will request. Because of the VA backing, Christine gets a lower interest rate, reduced closing costs and doesn’t have to make a down payment. Christine’s good credit score and credit history also help her to get the most favorable rate and terms on her VA mortgage.
Use our calculator to figure out how much house you can afford to buy.