When you’re ready to buy a home, the last thing you want to do is spend hours wading through different types of va loans to find the right one. But with so many options available, it’s important to understand the differences so you can make the best decision for your circumstances.
If you’re a veteran or active duty military member, you may be eligible for a VA loan. VA loans are backed by the U.S. Department of Veterans Affairs and offer several benefits, such as no down payment and no private mortgage insurance (PMI).
There are three types of VA loans:
Purchase Loan: The most common type of VA loan, this can be used to buy a home, build a home, or make improvements to an existing home.
Refinance Loan: This can be used to refinance an existing VA loan or non-VA loan.
Interest Rate Reduction Refinance Loan (IRRRL): Also called a streamline refinance, this can be used to lower your interest rate on an existing VA loan.
To get started, you’ll need to get a Certificate of Eligibility (COE) from the VA to prove that you’re eligible for a VA loan. Once you have your COE, you can compare lenders and choose the loan that’s right for you.
Here’s a closer look at the three types of VA loans:
Purchase Loan
If you’re buying a home, you can use a VA purchase loan. You can also use this type of loan to build a home or make improvements to an existing home.
With a VA purchase loan, you can finance up to 100% of the purchase price of the home. This means you don’t need a down payment, which can make it easier to buy a home.
You’ll also get a competitive interest rate and won’t have to pay PMI.
Refinance Loan
If you have an existing VA loan, you can use a VA refinance loan to get a lower interest rate or change the term of your loan.
You can also use a VA refinance loan to move from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
If you have a non-VA loan, you can still refinance into a VA loan. This is called a VA cash-out refinance. With a VA cash-out refinance, you can refinance up to 100% of the value of your home.
You can use the cash you get from the refinance for any purpose, such as home improvements, debt consolidation, or anything else.
Interest Rate Reduction Refinance Loan (IRRRL)
An IRRRL is a type of VA refinance loan that can help you lower your interest rate. IRRRL stands for Interest Rate Reduction Refinance Loan.
An IRRRL can only be used to refinance an existing VA loan. You can’t use an IRRRL to get cash out of your home.
To get an IRRRL, you don’t need an appraisal or income verification. And, you can refinance from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
To compare VA loans, it’s important to look at the interest rate, fees, and terms of the loan. VA loans typically have lower interest rates than other types of loans, but there may be some fees, such as a VA funding fee, that you’ll need to pay.
When you’re ready to compare VA loans, make sure to shop around and compare offers from multiple lenders. You can use an online loan marketplace, such as Credible, to get prequalified rates from multiple lenders in just a few minutes.
Once you compare offers, you can choose the loan that’s right for you and get started on the path to homeownership.