Breaking Down Types of VA Loans: Your Fast Track to Homeownership

If you’re a veteran, active duty service member, or surviving spouse, there are various types of VA loans for you to use to attain homeownership.

VA loans are offered through the U.S. Department of Veterans Affairs. They can be used to build or purchase a home, refinance a mortgage, or make repairs, and they offer numerous benefits to borrowers.

Learn more about the types of VA loans available, the benefits, and how to qualify.

What is a VA Loan?

The U.S. Department of Veterans Affairs sets the terms and standards for VA loans, which are not issued through this department. Instead, you will go to a bank or trusted mortgage provider.

Since the government backs VA loans, they are less risky for lenders and can provide more benefits to borrowers.

VA loan benefits include:

• No down payment is required*
• No private mortgage insurance (PMI)
• Flexible credit score requirement
• Limited closing costs
• No prepayment penalty
• Support from the VA

While no PMI is required, there is a VA funding fee. 

Depending on the down payment you provide, you may be required to pay a flat fee, usually 1.4% to 3.6% of the loan amount. This fee is either paid upfront or rolled into the loan amount.

How to Qualify for a VA Loan

To qualify for a VA loan, you must meet specific requirements and receive a VA certificate of eligibility (COE).

Required documentation to prove your service includes:

• DD Form 214 if you are retired, discharged, or separated from the armed forces
• Statement of service letter if you are still on active duty
• NGB 22 form if you are a National Guard veteran or retired military reservist
• Proof of service-related disability, if applicable

This information you provide will be used to issue a COE(Certificate of Eligibility). Your COE will detail how much your home loan benefit is and if you are eligible for a funding fee waiver.

What are the Types of VA Loans?

Depending on your unique needs, each VA loan offers its pros and cons.

Working closely with a mortgage lender with experience with the various VA loan types, you can weigh your options and determine which loan best suits your needs.

VA Purchase Loan

A standard VA-backed purchase loan will help you buy, build, or improve a home. Interest rates and terms vary by lender but will be better than the terms offered for other types of loans.

No down payment is required if the sales price isn’t higher than the home’s appraised value.

VA Cash-Out Refinance

As with any refinance loan, a VA-backed cash-out refinance allows you to replace your current loan with a new one with better rates and terms. 

You can also cash out your equity or switch from a non-VA loan to a VA-backed loan.

Cashing out can provide funds to make home improvements, pay off debt, or pay for other large expenses such as school. 

VA closing costs depend on the lender, so be sure to take these costs into account when refinancing.

VA Interest Rate Reduction Refinance Loan (IRRRL)

If you currently have a VA-backed loan and want to refinance, you can switch to a VA Interest Rate Reduction Refinance Loan (IRRRL). 

This type of loan allows you to reduce your monthly mortgage payments or make them more stable by switching from an adjustable rate to a fixed rate.

The difference between a VA cash-out refinance, and an IRRRL is that you must already have a VA-backed loan to be eligible for an IRRRL, and you can only change your terms. 

An IRRRL is a streamlined refinance loan because it focuses on rates and terms only. The eligibility requirements and options are more limited, so the process is “streamlined.”

Native American Direct Loan (NADL) Program

If you are a veteran and your spouse is Native American, you may be eligible for the Native American Direct Loan (NADL) program. This type of loan allows you to build, buy, or improve a home on federal trust land.

To qualify for this type of loan, you must meet additional requirements. Your tribal government must have a Memorandum of Understanding (MOU) with the VA detailing how the program will work on its trust lands.

A NADL has benefits similar to a VA purchase loan, including no down payment, PMI, limited closing costs, and low interest rates. You can also get more than one NADL for another residence.

How to Get Started with VA-Backed Loans

If you’re eligible for the numerous benefits associated with VA-backed loans, the first step is to acquire a Certificate of Eligibility. If you don’t have one or need help getting one, your trusted mortgage loan officer can help.

Finding a lender that offers the best rates and has the right experience working with these types of VA loans is essential to success. 

You need to trust that your lender understands what you need and can offer the best recommendations.