What Types of VA Loans are Available?
Whether you are looking for a first mortgage, adding a second mortgage or trying to refinance an existing mortgage, it is helpful to understand more about the general loan classifications and types of VA loans available to you.
Mortgage loans are categorized as either fixed rate mortgages (FRM), adjustable rate mortgages (ARM) or some combination (hybrid) of the two.
This classification is based on the type of interest rate structure governing the loan.
The most common mortgage terms are 30 or 15 year loans (also, 25, 20 and 10).
Generally, a short term loan will have less interest and higher payments – a long term loan, more interest and lower payments. A 15 year mortgage may have less than half the interest costs of a 30 year mortgage.
Characteristics of a fixed rate mortgage:
- The interest rate is fixed for the life of the loan (whether interest rates go up or down).
- Payments generally stay the same each month
Characteristics of an adjustable rate mortgage:
- The interest rate is adjusted periodically by adding a margin to an index specified by the mortgage (a 1-year ARM adjusts annually).
- Payments generally fluctuate along with the interest adjustment.
- ARM’s have limits on the amount of interest adjustment that can be made in given periods and across the life of the loan.
Characteristics of a hybrid loan:
- The interest rate follows some set plan for adjustment, using a combination of fixed and adjusting interest rates.
- Options are designed to meet a wider variety of needs.
- Qualifying standards are often more liberal than traditional loans
Mortgage loans are also categorized as government loans or conventional loans. Government loans are FHA, VA and RHS loans; all other loans are conventional.
The Federal Housing Administration (FHA) does not make the loans; it provides mortgage insurance which protects the lender.
Although FHA loans have statutory limits, the qualifications are generally more liberal than those for conventional loans.
They have lower down payment requirements (only 3 percent down), lower monthly insurance premiums, and often, lower closing costs which can also be financed.
FHA loans are intended to aid eligible families with low-to-moderate incomes who do not qualify for conventional loans.
Like the FHA loans, VA loans are only guaranteed by the U.S. Department of Veteran Affairs; lenders make the loans to eligible veterans for the purchase, construction, or energy-saving improvement (approved by the lender and VA) of a home.
VA loans also have easier eligibility requirements than conventional loans, often lower closing costs, and more liberal terms (usually no down payment is required) including negotiable interest rates.
If you are eligible, the VA will issue a certificate of eligibility that you take to the lender when making application for your loan.
Lenders generally place a maximum limit on VA loans.