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Your Complete Guide to the VA Home Loan

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    Frequently Asked Questions

    Question

    Why should I choose a VA loan over a conventional loan?

    When you use a VA loan, lenders are more likely to want to work with you (even if your financial picture is less than ideal) because the government has promised to cover your loan if necessary. As a VA borrower, you are not required to make a down payment or pay private mortgage insurance. You cannot be charged a penalty fee if you pay your loan off early, and you may be able to secure lower interest rates than you would with a conventional loan. VA loans have a very low rate of foreclosure, and help is often available for borrowers who begin to struggle with their payments.

    Question

    What is the maximum VA loan amount?

    Generally, VA loans are limited to $417,000, although in certain markets with a greater cost of living, loan limits can be higher. No matter what, your loan will be limited by the purchase price and value of the home. For example, if the house you want to purchase is valued at $300,000, no lender will grant you that extra $117,000 in your loan.

    Question

    If I’ve used a VA home loan before, can I get another?

    In the right circumstances, yes. If you have previously purchased a home with a VA entitlement, you can have your entitlement restored once you have either completely paid off the first loan, sold your house, or had another veteran or active-duty service member assume your first loan. If your loan has been paid off and you wish to keep the original property and take out another VA loan to purchase a second property, the entitlement can only be restored once. (This often happens when an active-duty service member is transferred to another posting but wants to keep his or her first home for when they retire.) However, if you no longer own the original property and you are no longer responsible for that loan, your entitlement can be restored over and over again.

    Question

    Do all lenders offer VA loans?

    No. The Department of Veterans Affairs must approve lenders who offer VA home loans. Note that different lenders have different requirements for closing costs and other fees, so it’s good to contact a few different lenders and learn their policies before making a final decision about whom to work with.

    Question

    What is the difference between prequalification and preapproval?

    No documentation is required for prequalification, only a conversation with a VA home loan specialist to get an idea of your general financial picture and your goals as a future home owner. Prequalification only gives you an approximate sense of your purchasing power and the requirements you may have to meet to receive a loan. Preapproval requires formal documentation of the information discussed during prequalification to confirm that everything is accurate and true. Without a letter indicating preapproval from your lender, you will not be able to make an offer to purchase a home.

    Question

    Can I take out a VA loan for a second home or vacation home?

    VA borrowers are required by law to certify that they intend to occupy the property for which the loan will be used as their primary home. However, the law also states that the occupancy by the service member’s spouse fulfills the primary residence provision, so if you and your spouse intend to live separately, full-time, you could be eligible to receive a VA loan on a property where you will not generally live. There is no such provision for any person other than a military spouse.

    Question

    Can I get a VA loan to purchase property in a foreign country?

    No. VA home loan entitlements are only valid for property within the United States and its territories and possessions, which include Puerto Rico, Guam, the U.S. Virgin Islands, the Northern Mariana Islands, and American Samoa.

    Question

    Do I have to buy a house with a VA home loan?

    VA home loans can be used to purchase or construct houses, condominiums, and town homes. It’s also possible to receive slightly different loans through the VA to purchase manufactured (mobile) and modular homes. VA loans can also be used to purchase multi-unit dwellings, as long as you, the borrower, intend to occupy one of the units.

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    A Quick Glossary of Certain Home Loan Terms

    When you begin the home-buying process, you’re likely to come across all sorts of confusing new terms. Here’s a quick glossary to help you out.

    Amortization – This is the act of paying off a debt with regular installments over a set period of time – essentially, having a mortgage.

    Clear to close – This means that any conditions for receiving a loan have been met, as far as the lender is concerned, and the buyer is ready to formally finalize their loan.

    Credit – This is an agreement in which a borrower receives something now in return for repaying the lender back later, usually with interest. It also refers to a borrower’s history of making required repayments, as well as their creditworthiness, or how likely a lender is to trust the borrower with a loan.

    Default – The state of being one month or more behind on your mortgage payments. If default is not rectified, it may lead to foreclosure.

    Depreciation – This refers to the decrease in value of an object over time. As a newly built home, for example, ages and is subjected to the normal wear and tear of daily life, its monetary value depreciates.

    Escrow – This is when a sum of money is held in an account by a neutral third party for a period of time, until the money needs to be distributed.

    Forbearance – This is a temporary cessation of mortgage payments allowed by a lender to help a borrower who has fallen behind catch up. Lenders may be willing to negotiate forbearance before simply foreclosing on a property, since they will usually incur losses during the foreclosure process.

    Foreclosure – This occurs when a borrower falls significantly behind on their mortgage payments and the lender seizes the property and evicts the borrower, usually with the intent of reselling the property.

    Funding fee – This is a mandatory fee attached to all VA loans that helps cover costs associated with the VA loans program. The fee can be financed as part of the loan. Instead of going to the mortgage lender, this portion of money goes directly to the VA to help keep the program running for future generations of service men and women.

    Guaranty – This is a pledge made by the federal government to repay a loan if the borrower should default. A guaranty puts lenders at ease because it generally represents a lower risk than a loan without a guaranty.

    Interest – This is the charge a borrower pays for the privilege of borrowing money, and it’s usually calculated as a percentage of the loan. For mortgages, interest rates can be fixed for the life of the loan, or they can vary over time. When interest is expressed as a yearly calculation, it’s often referred to as “annual percentage rate,” or “APR.”

    PITI – These letters stand for “principal, interest, taxes, insurance.” Generally, these four values make up a total mortgage payment. The taxes are property taxes, and the insurance is home owners’ insurance.

    Principal – This is the orginal amount owed on a loan, separate from any interest charges. If you take out a mortgage for $100,000, that amount is the principal. Once you’ve paid $20,000 (plus applicable interest), your new principal will be $80,000.

    Term – This is the lifetime of the mortgage, or the amount of time a borrower has to make all their payments. Standard mortgage terms are fifteen and thirty years.

    At Fortress VA Loans, our aim is to make the entire home loans program as simple as possible for current and former military members and their families. If you have any questions beyond the words defined here, contact our family of VA loan specialists and lenders at your earliest convenience.

    What’s the Difference Between PMI and MIP?

    There’s no way you can go through the process of obtaining a home loan, whatever the source, without encountering the need for insurance. Most people are familiar with home owners’ insurance, which protects the physical structure of your home and a lot of the “stuff” you have inside your home. This type of insurance is usually required by your mortgage lender, but depending on the type of loan you receive, you may have to pay other insurance as well – insurance to protect your lender in case you default.

    When a lender provides you with a loan to purchase a home, although your name will be on the title and all the closing paperwork, your lender technically owns your home, and you buy back a small share of it each time you make a mortgage payment that goes toward your principal. If you run out of money to, say, pay your property taxes, the local government can foreclose and seize your house, and then your lender would have neither the rest of the money you were supposed to pay them nor the physical property you were paying for. To protect lenders from such scenarios, borrowers often have to pay either private mortage insurance (PMI) or mortgage insurance premiums (MIP).

    PMI is required for conventional loans when the borrower’s down payment is less than 20% of the agreed-upon purchase price of the home. Some borrowers cannot put down 20% or more, while others may simply choose not to – 20% of the price of a home is probably going to be a very large chunk of money, and while paying PMI may mean you spend more overall, it’s usually broken down into much smaller amounts and spread out over a long

    • Credit reports (this charge should generally not exceed $50)
    • Pest inspection fee
    • The mandatory VA appraisal
    • Home inspection costs (It’s up to you, the borrower, to decide whether to get a home inspection. But you should always get a home inspection.)

    Other types of PMI include lender-paid PMI, in which the insurance cost is factored into the interest rate for the entire life of the mortgage, and single premium PMI, in which the total amount of PMI for the loan is paid up front in cash or financed into the loan itself.

    MIP are charged on loans from the Federal Housing Authority (FHA) if your down payment is less than 20%. You’ll have to pay both up-front and annual MIP; the former is taken as a small percentage of the purchase price of the home that remains after the down payment and is added into the value of the loan, while the latter is determined by both the remaining purchase price and the length of the loan. The annual MIP charge can be broken into smaller segments paid monthly. Under current rules, the cessation of MIP depends on how much you put down on your home:

    • If you put down at least 10% when you purchased your home, your loan-to-value (LTV) will be 90% or less, and you will have to pay MIP for eleven years.
    • If you put down less than 10% (and therefore your LTV is greater than 90%), you’ll have to pay MIP for the entire lifetime of the loan.

    Of course, if you are able to secure a VA loan to buy your home, you won’t have to deal with PMI or MIP at all. (Note that USDA loans require an insurance payment called up-front mortgage insurance, which functions similarly to MIP.) If you’re wondering what sort of home loan would best fit your needs based on your financial picture and long-term goals, get in touch with our family of VA loan specialists and lenders. And if you already know what kind of loan you want to obtain, contact Fortress VA Loans today to get started!