Veteran's Administration-backed mortgages have been one of the sought-after loan solutions for people looking for funding for homeownership. However, not all people who served in forces have sufficient knowledge about the powerful homebuying option.

Here is everything you need to know about VA –backed mortgages.

VA Loans – an Overview

The mortgage program is from the Department of Veterans Affairs (VA) for qualified military personnel and veterans. The primary purpose of the VA loan or mortgage program is to help military personnel get affordable financing options.

If you're a veteran, your loan limit to borrow is $484 350. But this conforming limit may increase if you live in high-end locations like New York or Sans Francisco. Unlike conventional loans, VA loans offer qualified veterans various benefits.

Veteran Affairs (VA) loans also do not require down payments and have marginally low-interest rates for retired military personnel. Though borrowers of VA loans don't have to pay mortgage insurance, they may be subjected to paying a funding fee on the purchase of the loans. This price ratio dwindles depending on the familiarization with the VA or beforehand appliance for a VA loan.

Also, VA doesn't have a PMI requirement for the applicants. VA home loans are a great option to save monthly fees and down payment costs if your budget doesn't allow you to pay a hefty amount of down payments. The loan carries the lowest interest rates. The closing costs are also relatively low compared to traditional home loans.

The mortgage companies and lenders charge around 1 percent of the total loan amount in the fees. Note that this limit isn’t applicable for fees title insurance companies, filing fees, recording fees, and third parties charges.

It is worth mentioning that VA doesn't provide the actual financing. It only insures the mortgage (a portion of it) when private lenders offer the loan.

Eligibility Requirements of VA Loans

While only limited military personnel and their family members qualify for VA mortgages, the loan type has more specific eligibility requirements.

  •      The veteran must have 181 days of active duty service

  •      90 Days Active Duty if during wartime

  •      The veteran or applicant must be a National Guard member for six or more years

  •     The applicant must be a spouse of military personnel who died while performing duty

Even if you meet the criteria, loan approval is up to the bank, Mortgage Company, or lender. If the lender has outlined some requirements, you need to follow that. As VA insures the loan lenders provide, lenders need to follow the specific guidelines to offer you VA-backed administration.

Basic and Bonus Entitlement of VA Loans

The VA allows you to borrow a VA-backed mortgage as your bonus entitlement. Entitlement refers to insurance. Basic and bonus entitlement are different entities but can be used simultaneously.

Here is how it works;

VA grants you a COE (certificate of eligibility) to show your eligibility for $36,000 as a basic entitlement.

The good news is that this $3600 isn't the maximum amount on your eligibility certificate. However, the amount VA pays if you fail to pay on loan" is the maximum figure for COE.

You can lend basic entitlement at least four times that, making around $144,000 when you multiply this figure by 4. As buying a home with $144,000 is difficult in many places, you can use your bonus entitlement to pay for the home.

It allows you to borrow up to $484,350, which is your national conforming limit to lending a loan. In some high-cost areas, this limit is $726,525. The VA figures out the bonus entitlement and uses the 25 percent it has to pay on a defaulted loan. Then it multiplies the amount by $484,350, which is the conforming loan limit.

How VA Loans Can Help You

Did you know VA home loan entitlement can be used in other ways than just home buying?

From using it to lower the interest rate on the current loan to drawing out equity in the house with 100 percent cash refinancing, the VA loan entitlement can do anything. Also, you can use the loan as long as your basic and bonus entitlement is not used.

Now you have the basic knowledge of how VA loan works and is beneficial; you can find a suitable loan program.