Veterans Affairs Loans (VA)

The U.S. Department of Veterans Affairs guarantees mortgage loans for veterans and service persons. It does not underwrite the residential loans. The guaranty allows veterans to get home mortgage loans with good borrowing terms, usually with little or no down payment.

To be eligible for the VA loan, you must have served 180 active days service since September 1940. If you enlisted after September 7, 1980 you need to have two years of service. You do need to get a certificate of eligibility from the Department of Veterans affairs as proof of service.

Veterans are not permitted to pay points to the mortgage lender on these types of mortgage loans. You can prepay a VA loan without penalty and the residential loan is assumable, meaning the property buyer can take over the mortgage if the property is sold. This feature can save a buyer significant amounts of money in mortgage interest payments. The buyer still needs to meet the requirements of the current mortgage banker. The homebuyer takes over payment on the existing mortgage and pays the difference between the mortgage balance and the selling price. You should always verify first whether the mortgage home loan you are securing is assumable.

If you're a veteran, you might qualify for a VA loan and put nothing down. Just like with FHA loans, the VA itself doesn't lend money, it just guarantees part of the loan so lenders feel comfortable lending the money. Qualified veterans can get loans up to $203,000 with no down payment. VA-guaranteed loans can be combined with second mortgages (which is when the bank makes the main loan covering most of the price of the house, and the seller makes a separate loan to the buyer for the rest of the price.) VA loans can be assumed by any future qualified buyer. (visit the VA's home loan site for more)

Advantages: The biggest advantages of using a VA loan is that the borrower can finance the purchase of a property with no-money down. Flexibility of negotiating interest rates with the lender is there.
No monthly mortgage insurance premium to pay & you have the right to prepay loan without penalty.

Disadvantages: VA loans are restricted to individuals qualified by military service.