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What Is a VA Loan?

By Len Penzo

Readers: This is article 8 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.

mortgage basicsVA loans are government-backed mortgages that are insured by the Veteran’s Administration. VA loans are available from qualified lenders to homebuyers who have served in the US military including:

  • Soldiers and sailors on active duty
  • Members of the National Guard
  • Veterans
  • Reservists
  • Some surviving spouses

Because VA loans protect lenders against default, the loans usually have better terms than conventional loans. In fact, a VA loan is one of the best mortgage programs available. Here are some of the biggest advantages:

  • No down payment. Neither conventional or FHA loans offer this perk.
  • No private mortgage insurance (PMI). Unlike VA loans, conventional and FHA both require PMI from borrowers who fail to meet minimum down-payment requirements.
  • No prepayment penalty. This is perfect for homebuyers who want to pay off their loans early.
  • Higher debt-to-income ratios (DTI). VA loans usually have a maximum DTI ratio of 41. Conventional and FHA loans are typically 36 or less.

There are some drawbacks to VA loans, but they are relatively minor:

  • They cant be used to buy a second home. VA loans are intended for primary residences only.
  • Maximum loan ceilings. Technically, there is no maximum loan limit, however, lenders typically limit loans to $417,000.

Photo Credit: GotCredit

March 17, 2016

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