VA Loans Q & A
VA Loans Q & A
How does a VA loan work? Are VA loans really that complicated? Not so, and for veterans, both retired and active duty, they can be one of the best choices when purchasing a new home. Here are some highlights about VA loans that can help you through the process of deciding if a VA loan is right for you.
Is the VA the lender?
The Veterans Administration does not actually provide the VA loan to you. Many have the misconception that the VA actually funds the loan and services the loans. The VA only insures loans from lenders who fund these loans to veterans or active military. The VA also regulates all approved lenders to insure the loans are in proper order and that the lenders meet the VA requirements to be an approved VA lender. The VA does not underwrite the loan, your mortgage lender is required to make sure the loan meets all VA guidelines and requirements.
Does the VA set my interest rate?
Interest rates on VA loans are not set by the VA. Rates on these loans are determined based on the market, just like all other mortgage loans, including FHA and conventional loans. So it is important that you shop the market for the best rates and closing cost being offered. Remember, it is not the VA that is looking out for your best interest in terms of rates. Make sure you are being diligent with the lender you chose to insure you are working with a reputable and experienced VA lender.
Why does the VA charge a funding fee?
A VA loan comes with tremendous benefits. Lower cost, lower rates and no down payments. However, the VA does charge what is called a funding fee. The funding fee is typically around 2% of the loan amount. Most of the funding fees range anywhere from 0% to 3.3% of the loan amount, depending upon your circumstances. Any veteran with a service related disability is usually exempt from paying the funding fee. This fee is typically rolled into your loan and is not required to be paid by you out of pocket. Some really great news is the funding fee may be tax deductible, but you would need to check with your tax advisor for more details on that.