What are VA Loans?

2007-03-08 10:33:40

( Financial )



Private institutions such as loans or savings companies, banks, or mortgage companies grant VA loans to veterans who wish to buy a house, a manufactured house and lot, have energy-saving devices installed onto the home, or to make home improvements.

VA loans offer lower interest rates than typical loans, and do not require an initial payment in order to avail the loan. VA loans are guaranteed by the Veteran’s Association that gives the borrower protection in case one fails to pay back the loan or for any losses that can be incurred. The maximum guarantee on the loan is usually 25% or up to a certain limit (for more up-to-date information, you may approach the local Veterans Association).

The Veterans Association (VA) cannot guarantee for any defects found in the property you buy, nor can they demand the builder to correct any defects in construction: they can only suspend the builder from participating in the VA loan program. The VA also cannot guarantee that the price of a house today, can be the same price you can sell it for in the future.

VA loans provide a fixed interest rate, long repayment terms, loan repayment without any penalty and extension of the loan period, provided the borrower has been making regular payments when one encounters a temporary financial setback.

The use of a VA loan calculator can help you determine your monthly payments based on the interest rate, loan amount and the repayment period. You must find a private institution that will lend you the money, once you have decided to avail of the loan. Certain documents are needed for your application to be processed. Amongst the documents required is a certificate of eligibility that is issued by the Veterans Association. The VA eligibility certificate does not in any way guarantee that a loan will be granted to you. Other factors need to be considered such as your ability to repay the loan.

If the principal veteran dies while the loan is still being paid, the last surviving spouse must continue with the payment. If the last surviving spouse also dies, the remaining assets must be liquidated to pay off the existing loan. A mortgage life insurance policy may be purchased to offset the costs on this.

Selling your property while the loan is being paid off does not excuse you from discontinuing your loan payments. If you sell your property, the loan payments become the responsibility of the new owner and the value of the loan can be subtracted from the selling price of your home. If veterans have difficulty in paying off their loans, they may apply for VA refinancing.

VA loans are only granted for the purchase of property within the US and are not valid for properties that are located in Puerto Rico, the Virgin Islands, American Samoa, Guam and Northern Mariana Islands. Some lending companies offer assistance in obtaining VA loans for these territories under certain conditions.


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