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What to Know About VA Loans

Posted May 13, 2021


Trying to navigate the world of finances is intimidating under the best of circumstances, and securing a home loan can be particularly complex. However, if you’re an active member of the United States military or a veteran, a VA loan can both simplify the process and reward you for your service. Here’s what you need to know before applying for a VA loan.

What is a VA loan?

In order to understand VA loans, you need a base knowledge of mortgages. Investopedia’s Julia Kagan defines a mortgage as “a debt instrument, secured by the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments.” In everyday terms, it’s a way to borrow money so you can purchase or refinance a property.

What sets VA loans apart is that they are partially backed, or guaranteed, by the Department of Veteran Affairs and frequently come with a $0 down payment and advantageous interest rates. These terms are generally more favorable than other financing options as a way of repaying you for your service.

What can you use a VA loan for?

While traditional mortgages and VA loans are similar or identical in most respects, a big difference is the type of purchase they can be applied to. If you go to your financial institution for a mortgage, you can use the money you receive to purchase multiple kinds of real estate, including houses, vacation homes, investment properties, and commercial locations for businesses. VA loans, on the other hand, only apply to primary residences. However, you can use a VA loan to buy a 2-4 unit home that you are going to live in and rent out the other units as a way to make your home work for you.

How does the process work?

To secure a VA loan, you should first obtain a Certificate of Eligibility directly from the VA, which proves that you are or were a qualified member of the military. This is typically the point at which you’ll learn your entitlement, which Military.com defines as “the amount the Department of Veteran Affairs will guarantee on your VA loan.” In most cases, there are two types of entitlement: basic and bonus. The Ascent’s Maurie Backman states that basic entitlement means the VA will back 25 percent of the loan or up to $36,000, and bonus entitlement covers “up to 25% of the Federal Housing Finance Agency conforming loan limit minus the basic entitlement.” For most people, that amount is capped at $91,600. Please note, this does not allocate funds to you for down payment or closing costs but may allow you to finance 100% of your home’s sales price.

The rest of the process is very similar to how you’d purchase a home with a traditional mortgage. First, get pre-qualified by a mortgage specialist at Ulster Savings Bank, then go house hunting and find the home and location that’s right for your family. Then, once you’ve signed a purchase agreement and submit the required documentation, we can process your application and request a VA-certified home appraisal to make sure you’re not being charged an unreasonable amount for the property. Once that’s complete we will work to approve your loan so all you have to do is close the deal and move in. 

If you’re a qualified member of the military, VA loans may be a great way to get the best mortgage on a new home for you and your family. If you have additional questions about the process, please contact our mortgage team here at Ulster Savings Bank or visit the mortgage page on our website here: https://www.ulstersavings.com/personal/mortgages/

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