Also known as the Veterans Affairs loan or simply VA loan, a VA mortgage is a type of house loan that is backed by the U.S. Department of Veterans Affairs to allow qualified members to purchase condominiums, manufactured homes, multi-unit properties, single-family homes, and new construction.
The VA is not the loan lender but only ensures that the private institution who lends money to the borrowers–veterans, active military personnel, the reserve members, National Guard members, and qualified military spouses–are protected against defaults.
How VA mortgage is beneficial
The Department of Veterans Affairs establishes the rules for those who qualify and orders the terms of the mortgage being offered. This kind of loan is specifically beneficial for those who has served the military and are actively on duty because of a “no down payment” policy and other benefits. Unlike regular mortgages, military borrowers are not required to pay for property insurance.
Three common types of VA mortgage
- Purchase loans
This is the basic VA loan type that allows military veterans and those on duty to purchase a home, provided that their income qualifies and they satisfy other requirements.
- Interest Rate Reduction Refinance Loan (IRRRL) or the VA Streamline Refinance loan
In an IRRRL loan, the homeowner can refinance the property mortgage in order to lower the monthly amortization. Homeowners apply for this type of VA loan when interest rates are declining and they want to take advantage of the market trend.
- Cash-out refinance loan
For Veterans who want a lower home loan rate and/or tap into the equity in their home, they can apply for VA cash out refinance. They can also use the cash proceeds of their loan to pay down high-interest debts or make home improvements. Eligibility requirements for a cash out refinance is fairly similar to those of VA loans for a home purchase.