The Different VA Purchase Loan Options
Veterans have access to the three different types of loans: the purchase loan, the VA cash-out refinance and the VA streamline refinance (IRRRL). When looking to buy a home, only one of these can be used for purchasing.
The VA purchase loan has a lot of different rules, though. Depending on what the veteran is looking for, they can take advantage of some of these benefits, or ignore others entirely.
For the most part, veterans will take advantage of the same benefits offered through the VA loan: 100% financing, low mortgage rates and low credit score requirements, to name a few.
Purchase loans are mostly the same, although little changes can give you a different type of VA loan.
Regular VA purchase loan
By “regular,” this means that it’s a standard VA purchase loan. In addition to the biggest benefits offered by the VA loan, home buyers will also be able to prepay without penalty and avoid paying mortgage insurance, regardless of the size of their downpayment.
There are other requirements to consider, though. The VA has required fees at closing, including the VA funding fee. This fee helps keep the VA program running. Even when including the funding fee in the total costs, though, the VA loan is usually still the best option for home buyers – if they’re eligible.
Also, the home that you choose will have to pass the VA appraisal. The VA has stricter standards than other organizations, and some problems like lead paint can prevent the mortgage from going through entirely. but most available homes (and nearly all new homes) will pass this with ease.
VA renovation loan
Not all homes are up to the VA’s standard, and some have a little work that needs to be done. This is where the VA renovation loan comes in.
The VA renovation loan is still technically a VA purchase loan, only the total size of the mortgage is going to be a little larger. Veterans can use this extra money – up to $35,000 – to make important renovations or repairs to homes.
There is a limit to where the money can be used, though. The extra funding can go toward repairing the roof or floors, improving the energy efficiency of the home and removing lead paint and getting the home repainted, among other uses.
You can learn more about VA renovation loans and their restrictions here.
VA construction loan
Beyond renovating a home, the VA loan can be used to build a new home.
A VA construction loan allows home buyers to become home builders, financing the construction of their future home with a VA loan. This can be an affordable way to build a home, if you have the time to wait until the construction is complete.
The biggest downside to this type of loan is that it can be difficult to find a lender willing to issue one, especially if the veteran is looking for 100% financing. These are rare loans – but the VA guarantees them, and some veterans do manage to find a lender willing to issue them.
Native American Direct Loans
Native American Direct Loans (NADL) are VA loans specifically for Native American veterans and their spouses. These have all the same benefits of the VA loan, including the renovation benefits, but with fewer restrictions.
The biggest benefit of this VA loan is that the Native American veteran can use the loan to purchase property on Federal trust land. The regular VA loan cannot be used for this.
Differences when reusing a VA loan
You’re allowed to use VA loans multiple times, although the loan will change slightly after the first purchase.
The VA funding fee increases after you buy you first home with the VA loan. However, it won’t continue to increase if you use the VA loan to buy your third home and on.
As of January 1, 2020, VA-eligible borrowers can get any size loan with no down payment. There are no official limits. But remember, you’ll still have to qualify for the mortgage.