Your Complete Guide to the Conventional Home Loan
- SECTION 1 What is a CONVENTIONAL Loan?
- SECTION 2 Am I Eligible for a CONVENTIONAL Loan?
- SECTION 3CONVENTIONAL Loan Benefits
- SECTION 4CONVENTIONAL Loan Rates
- SECTION 5First-Time Homebuyers
- SECTION 6CONVENTIONAL Jumbo Loans
- SECTION 7Refinancing with a CONVENTIONAL Loan
- SECTION 8Contract Guidelines
- SECTION 9The CONVENTIONAL Loan Process
NEXT STEP Start Your Quote Online →
What is a VA Loan?
Video: The VA Loan Process
A VA Home loan is one that is through the U.S. Department of Veterans Affairs. U.S. Department of Veterans Affairs is a Federal Agency responsible for national policy and programs that address America's Housing needs for veterans, active service members, and spouses. The VA home loan program was created in 1944, part of the original Serviceman’s Readjustment Act, better known as the GI Bill of Rights. Signed into law by President Franklin D. and has helped millions of services members over the years.
VA home loans have been streamlined through the years to provide access to the mortgage market for veterans, service members and their spouses.
A VA home loan is a large sum of money lent to a borrower by a mortgage lender. VA home loans often have higher lending requirements but the benefits of meeting those requirements are returned with competitive rates and down payments assistance. When a prospective homeowner is ready to shop around for a mortgage, they will work with their Orbit Home Loan mortgage broker. This is a financial professional who brings together borrowers and lenders. They are not lenders and, as such, do not use their own funds to advance mortgage loans. Instead, they act as intermediaries, helping consumers comparison shop, bringing them a variety of quotes from different lenders at one time.
If you're ready to start your VA loan, check your eligibility or have specific questions on the VA loan, talk with a Veterans United Home Loans specialist today.
Start Your Quote Online →
LOAN CHART
How Do VA Loans Work?
VA home loans work like this: Your Orbit Home Loan mortgage broker (Mortgage Banker) works on your behalf to qualify you with the most competitive lenders in the nation. VA home mortgages are typically lent out with 15 or 30 year repayment periods; the one that’s right for you depends on your personal finances, your income, and the interest rate you can secure. Once you are qualified, completed the process and have purchased the property your lender will sell your loan to U.S. Department of Veterans Affairs, and they will now function as the servicer of your loan and will be responsible for collecting your payments. There is a possibility that your servicer may change so do not worry if that happens, it is normal. It is important to remember that your payments include your promise to pay back with interest.
Interest is the percentage rate you pay to for the trouble of the U.S. Department of Veterans Affairs lending you money. This is how the U.S. Department of Veterans Affairs makes money from having lent you such a large sum. Interest rates are either fixed or adjustable and interest rates normally adjust daily but can adjust multiple times a day. The interest rate you receive on a conventional loan will also vary based on your own personal financial profile.
Types of VA Loans
1. VA Purchase Loan
Veterans and service members can use the VA loan to purchase new or existing homes with $0 down payment. VA purchase loans also allow Veterans to buy single-family homes, condominiums, manufactured homes, multiunit properties (like a duplex) and even new construction.
Policies and guidelines can vary by lender. Some lenders may not make all of these types of VA purchase loans.
2. VA IRRRL
The VA Interest Rate Reduction Refinance Loan (IRRRL) is one of the VA loan program's two refinance options and the one most Veteran homeowners choose.
These are also known as VA Streamlines, and that's because they're simple, low-cost refinance loans that in some cases might not require credit underwriting, income verification or an appraisal.
The VA IRRRL is only for Veterans who currently have a VA loan, require your new rate is smaller than your old rate and have a limit on the time it takes to recoup the costs and fees. All of which help ensure Veterans realize the full financial benefit.
3. VA Cash-Out Refinance
The VA Cash-Out refinance allows qualified homeowners to refinance their mortgage and take out cash from their home's equity. These loans are open to Veterans with and without current VA loans. Qualified homeowners can typically refinance up to 90 percent of their home's value.
Lending guidelines and loan-to-value requirements can vary by lender. Homeowners are not required to take out cash with these loans, which means Veterans with non-VA mortgages can use this option as a basic rate-and-term refinance.
4. VA Energy Efficient Mortgage
The VA allows Veterans to borrow additional money to pay for energy efficiency improvements to a home, as part of either a home purchase or a refinance.
Veterans can finance up to an extra $6,000 to cover the cost of qualified improvements, like storm or thermal windows, heat pumps and solar heating and cooling systems. Homeowners can't use this option to purchase appliances, window air conditioning units and other non-permanent additions.
Not sure what type of loan is right for you? Use the tool below to help you find out.
Exploring the VA Loan
VA Purchase Loan
The VA loan program has helped generations of Veterans, service members and military families achieve the dream of homeownership. At the heart of this benefit is a promise: Because of their selfless service to our country, Veterans have access to a home loan program with flexible guidelines and significant financial benefits, chiefly the ability to purchase with no down payment.
Let’s take a closer look at how VA loans work and what it takes to start the VA loan process.
VA Guaranty
Although the VA loan is a federal program, the government generally does not make direct loans to Veterans. Instead, private lenders including Veterans United Home Loans finance the loan while the Department of Veterans Affairs offers a guaranty.
This guaranty protects the lender against total loss should the buyer default, which provides an incentive for private lenders to offer the VA loan with better terms than other mortgage options.
VA Loan Limits
Qualified veterans with their full VA loan entitlement can borrow as much as a lender is willing to extend, all without a down payment. The VA loan limits only come into play for buyers with less than their full entitlement, either because they have one or more active VA loans or because they’ve lost a previous one to foreclosure. To see how the VA loan limits might affect you, give us a call.
VA Funding Fee
The VA Funding Fee goes directly to the VA to ensure the program keeps running for future generations of Veteran and military homebuyers by removing any additional burdens off taxpayers and Veterans.
The fee varies depending on the borrower's circumstances. For example, if this is your first time using the VA home loan program, the funding fee is typically 2.3 percent of the purchase price of the home. For subsequent use of your VA loan benefit, the fee is 3.6 percent. The fee for an Interest Rate Reduction Refinance loan is just 0.5 percent, no matter how many times you’ve used the benefit.
VA borrowers can roll the funding fee into their overall loan amount. The VA also limits closing costs for Veterans and allows sellers to pay most or all of those expenses. Many of our borrowers purchase a home with no money due at closing, but every buyer’s situation is different.
The VA also exempts some Veterans and surviving spouses from the funding fee entirely. The most common exemption is for Veterans receiving compensation for a service-connected disability. Surviving spouses with VA loan eligibility are also exempt. Only the VA can make a determination about funding fee exemptions.
VA Cash-Out Refinance
The VA Cash-Out refinance allows qualified homeowners to refinance their mortgage and take out cash from their home's equity. These loans are open to Qualified borrowers with and without current conventional loans. Qualified homeowners can typically refinance up to 90 percent of their home's conventional value. Lending guidelines and loan-to-conventional value requirements can vary by lender. Homeowners are not required to take out cash with these loans, which means Qualified borrowers with non-conventional mortgages can use this option as a basic rate-and-term refinance.
Check Your Eligibility Today (CLICK)
VA Loan Limit
If you have remaining entitlement for your VA-backed home loan, find out the current loan limits and how they may affect the amount of money you can borrow without a down payment. As of 2020, if you have full entitlement, you don’t have a VA loan limit. VA home loan limits are the same as the Federal Housing Finance Agency (FHFA) limits. These are called conforming loan limits.
VA Funding Fee
The Blue Water Navy Vietnam Veterans Act of 2019 caused the VA funding fee to raise from 2.15% to 2.30% for first-time borrowers and 2.40% to 3.60% for those who have previously used a VA home loan.
Is The VA Loan a Good Option?
VA loans are arguably the most powerful loan option on the market. They come with a list of big-time benefits, including $0 down payment, no mortgage insurance, flexible and forgiving credit guidelines and the industry's lowest average fixed interest rates.
Every Veteran buyer's situation is different, and going over all of your loan options with a home loan specialist can help ensure you make the best financial decision possible.
How do I Get a VA Loan?
Talk with a trusted lender that knows conventional loans and how to get the most from this hard-earned benefit. The process typically starts with getting pre-approved, which can often be done in minutes using your phone, laptop or tablet.
Loan pre-approval is a key first step before making an offer on your dream home. Having that pre-approval letter gives you a clear sense of your buying power and shows sellers and listing agents you have what it takes to get to closing.
Start my VA loan with Orbit Home Loans -- the Nation's #1 VA purchase Broker
If I’ve Previously Used a Conventional loan, can I use it again?
Yes, this is not a one-time option. Once you use the conventional loan benefit, it's yours for life. You can reuse the conventional loan over and over again, and it's even possible to have more than one active conventional loan at the same time.
Continue to learn more about VA loan in our next section.