The VA doesn’t make VA loans, contrary to what the name suggests. Instead, individual lenders fund the loans in the VA’s name. What the VA does do, though, is guarantee the loan. They promise the VA-approved lender that they will pay back a portion of the loan that they lose if the borrower defaults. The VA offers this guarantee alongside their promise for 100% financing for borrowers.
But what can a borrower buy with a VA loan? We take a look at your various options below.
Buy a Home
The most common thing you can do with a VA loan is buy a home. By home we mean a single-family home, condominium, townhome, or even a manufactured home. Keep in mind that you might have a hard time finding a willing lender if you want to buy a manufactured home, though. The VA allows it, but many lenders aren’t willing to take the risk.
If you do buy a condo or townhome, you will need to buy one in a VA approved development. The VA wants to make sure that the development is in good condition, doesn’t have any pending legal action against them, and that the association handles the finances well. Finding a development that is already VA approved will likely yield you with the best results.
Build a Home
You can use a VA loan to build a home. This is another situation where you might have a hard time finding a willing lender, though. The construction loan puts lenders at risk. Because they provide the funds for a home that you can’t live in, the chance of default is high. The VA does allow this type of transaction, though.
If you can’t find a lender that will provide the funds to build the home, you still have one other option. You can finance the home’s construction through the builder or another lender. Once the home is complete and ready for you to move in, you can refinance your construction loan into your VA loan, allowing you to use the flexibility of your VA loan benefit.
Buy a Multi-Unit Property and Rent it Out
VA loans are typically only for owner-occupied properties, but the one exception is the multi-unit property. You can purchase a multi-unit property with a VA loan as long as you live in one of the units. This satisfies the owner occupancy requirement of the loan. You are then free to rent out the other units and use the rent money towards your mortgage payment. You just have to make sure you satisfy the owner occupancy requirement by living in one of the units; otherwise, it becomes an investment property, which is not eligible for VA loans.
Make Energy Efficient Changes
The VA EEM loan allows you to buy/refinance a home and make energy efficient changes at the same time. You are able to make up to $6,000 in energy efficient changes with this program. A few of the most common changes are replacing windows or doors, adding insulation, or installing solar heating or cooling systems.
The lender must approve the energy-efficient changes and many times they will require an energy audit to make sure you will save money on your energy bills after making the designated changes.
Refinance Your Current Loan
The VA offers two types of refinance programs – the streamline refinance and the cash-out or standard refinance.
The VA streamline refinance is only for current VA loan borrowers. If you have a VA loan and you just want to refinance to lower the interest rate or change the term, the IRRRL program can help. You don’t have to verify your credit score, income, assets, or home value for this loan. You simply prove that you have a timely mortgage payment history and that there’s a benefit for the loan. That’s all the VA requires.
If you don’t have a VA loan now or you want to take cash out of your home’s equity, you’ll need the VA cash-out refinance. This loan works just like the purchase loan – you have to verify all aspects of your qualifying factors. This means providing your income, assets, liabilities, debt ratio, credit score, and home value. The VA allows you to borrow up to 100% of the home’s value even for the cash-out refinance, though.
You can do a lot of things with your VA home loan benefit. Discuss your options with several lenders to see which option will help you achieve your desired real estate goals.