Learn more about why the VA Home Loan Program has served over 20 million veterans to date. Get information about qualifying for a VA Loan, credit score requirements from lenders, and much more.
What is the VA Loan?
Originally part of the Servicemen’s Readjustment Act of 1944, commonly referred to as the G.I. Bill, the VA home loan benefit was introduced along with a host of programs designed to assist service members returning from World War II.
This special program is hands-down the best mortgage program in the marketplace for those who qualify. The VA home loan requires zero money down from the borrower, common sense credit guidelines and reduced closing costs as well.
And while a VA loan has no down payment requirement, the interest rates are as competitive as any and there is no monthly mortgage insurance payments compared to other reduced down payment mortgage programs. VA loans come with a government-backed guarantee on all VA mortgage programs and have the highest performance rate of any mortgage product in the industry.
No down payment, reduced closing costs and easier qualifying is why more than 20 million have taken advantage of this very special home loan.
Understanding APR
The annual percentage rate, or APR, is a number that is required to be disclosed to you when a lender accepts a complete loan application or advertises its interest rates to the general public. It’s an oft-confused number but is best described as the cost of money borrowed expressed as an annual rate and is a combination of the note rate – the rate upon which your monthly payment is based – and certain finance charges needed in order to close the loan.
The APR is best used to compare identical loan offerings between multiple lenders. The lower the APR, the better the offering. Three lenders may all offer the same note rate but have different fees that you may be responsible for. The greater the variance between your note rate and the APR indicates more closing costs.
For example, three lenders quote a 5.00 percent fixed rate with no points on a 30 year mortgage loan amount of $100,000. Lender A has $500 in finance charges, Lender B $1,000 and Lender C $2,000. The APR in this example calculates to:
- Lender A 5.04 %
- Lender B 5.12 %
- Lender C 5.31 %
By comparing the APR, you can tell that while all have the same interest rate, Lenders B and C have higher closing costs associated with the loan.
Closing Costs
There are one-time closing costs paid to various parties in the course of approving a VA loan request. VA lenders need certain documentation from you as well as third parties before a loan approval is granted. Yet the VA only allows specific closing fees that may be paid by the borrower, reducing the amount of closing costs needed on the loan program.
Fees that the borrower is allowed to pay include:
- Appraisal
- Discount points
- Credit report fee
- Title insurance and related charges
- Origination fees
- Recording fee
- Survey or abstract charges
- Funding fee
Charges that the borrower is not allowed to pay are:
- Attorney fees
- Escrow or settlement charges
- Underwriting fee
- Loan processing fee
- Document preparation fees
- Other fees
The loan officer will provide a list of expected closing costs that you may be required to pay when you first apply for the loan and can provide different scenarios on how closing costs can be handled. Be sure you understand all listed fees, what they’re for and who pays for them.
And don’t forget, beyond the one-time fees listed here, you will also need to arrange for homeowner’s insurance and escrow and impound accounts. These accounts are payments that accrue each month that will pay the property tax bill and insurance premium renewal when they’re due.