You have probably come across these terms in recent times, thanks to a large number of home buyers that are turning towards other forms of financial assistance. This is largely fueled by the reality that regular programs from banks and lenders are incorporating increasingly stringent requirements for home loans. Let’s see what exactly a VA loan entails and its relation to your credit score, along with eligibility requirements.
The Veterans Affairs mortgage is a type of loan that’s accessible to veterans and active military individuals who want to purchase a primary residence. If a military member lost their life away on active duty or incurred a disability due to a service-related accident, then their spouses may apply as well. Investment or vacation homes may not be financed through the VA loans program.
While the Department of Veterans Affairs is not responsible for lending the money for the loan, it does back those made by other private lenders such as mortgage companies or banks to borrowers who meet their requirements. In this respect, a VA loan is sort like a FHA home mortgage except the approval criteria requires military service and the government institution in play is the VA.
There are many advantages to a VA loan and some of the benefits include:
If this is the first time a person in the armed forces is obtaining a VA loan, that too with zero down payment, then their fee will be 2.15% of the loan; but if you make a 10% down payment for instance, then this fee will be reduced further, down to just 1.25% of the loan! This low interest rate opportunity is a huge advantage and greatly reduces the cost of borrowing.
If you’re a second time borrower, then the fee would amount to 3.3% of the loan given that you are not making a down payment. Again, this is still a very good interest rate and given no money down, this is a highly attractive home loan choice. Other advantages or perks about this include:
The credit score is an important determinant of your mortgage rate. Borrowers who have a relatively high credit score can always expect better terms and even lower rates than one would otherwise. Although the VA has no specific credit score requirement, most lenders set their threshold at about 620 or 640 for this loan choice. To add favor to your odds of approval, it is best to settle any outstanding debts and show a responsible financial history that keeps your from being considered a risky borrower.
Once you’ve obtained your Certificate of Eligibility from the VA, you can apply for the mortgage loan with any lender under the program. To make things even easier, your lenders can actually get a copy of this certificate on your behalf.