The United States Department of Veterans Affair provides numerous benefits and assistance programs to people who have served in the military. There are many advantages of VA loans which make using this program a viable and sensible option for veterans or people who have served in the Armed forces to purchase a home.
However, please note these loans do not actually provide money to veterans, but instead offers loans which are guaranteed by private lenders, such as mortgage companies and banks. So, what is a VA loan and what does it offer? Well, this type of loan protects the lenders investment if the borrower (Veteran) defaults, which, in turn, provides security to the lender making it more likely for veterans to receive a home loan.
The History of VA Loans
To understand what is a VA loan, let’s begin with a little history. Towards the end of World War II, an act named the “Servicemen’s Readjustment Act’ was passed. And the main function of this act was to provide benefits to eligible veterans. Basically, the ‘Home Loan Program’ of the Veteran Affairs was considered the most important of these benefits.
Nevertheless, there was more to the Veteran Affairs, as they provided veterans life insurance plans, pension, special services, educational services, vocational rehabilitation and employment services and many more. The program went through various changes, but over the past few decades it finally became regulated and anyone eligible for the VA loan can take advantage of these programs. Therefore, as previously mentioned, a VA loan is not typically a loan, but rather a type of benefits program for veterans.
Understanding What Is A VA Loan
Like traditional home loans, the homebuyer (Veteran) must go through a private lender, but one which is approved and guaranteed by the Veterans Affair Department. And since the loan is guaranteed by the VA, it replaces the protection lenders receive from the down payment. Thus, VA loans eliminate the need for making the down payment. If your interested in seeing what your monthly payments will be, take a look at the free VA Loan Calculator Tool we offer.
Moreover, unlike traditional FHA loans, VA loans do not require any type of mortgage insurance. Therefore, by combining this benefit with competitive rates, veterans have the opportunity to purchase a home and save lots of money on the other side. In addition, since it is a benefits’ program, veterans also have to make lower monthly payments. Now, how is that possible?
Well, the VA prohibits lenders from acquiring private mortgage insurance. Other loans typically have mortgage insurance which can run up to several hundred dollars a month. But since the Veteran Affairs guarantees the loan, there is no need for insurance and thus have lower interest rates as compared to traditional loans, therefore, resulting in lower monthly payments.
We hope that this answers the questions “What is a VA loan?” for you!