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Different Types of VA Loan Products

Did you know that there is more than one type of VA loan product? Many borrowers don’t. VA loans come in many different shapes and sizes, and there could be one that is perfect for your home purchase. Let’s run through what you need to know.

VA loans make it possible for active and discharged service members, and their families, to access home loan products with zero down payment required. Most loan products require mortgage insurance if the down payment is less than 20%. However, because the Department of Veteran Affairs guarantees VA loans, no mortgage insurance is required, potentially saving borrowers hundreds each month.

VA loans aren’t just for new home buyers. You can also use them to refinance your current home to access better loan terms or withdraw equity for a renovation or investment purchase.

Different types of VA Loans

There are four main types of VA loan products. If you are an eligible service member or veteran, it’s crucial that you fully understand these products so you can take advantage of them now or in the future.

VA Home Purchase Loan

When most people think of a VA loan, they think of the initial home purchase. A VA Home Purchase loan is used when a buyer uses a VA loan to purchase their primary residence. Many buyers don’t know that as long as a property is owner-occupied, it can have up to four units, which makes it an outstanding loan product for buying a home and becoming a landlord. If the owner lives in one of the units, they can lease out the other three.

VA Cash-Out Refinance

As time goes by, homes tend to appreciate, and the buyer pays down their principal loan amount, creating equity within the property. Those that qualify for a VA loan can access this equity by refinancing their loan to withdraw cash.

Borrowers who used a VA loan for their initial purchase may only be able to withdraw as much as they have paid down (not the appreciated value). However, if they used a conventional loan or another loan type for their purchase, they could fully utilize their VA loan benefits to withdraw all of their equity. 

VA Interest Rate Reduction Refinance Loan (IRRRL)

Interest rates change over time. If you purchased your home with a 6% interest rate a decade ago, and now rates have dropped to 4%, it’s only natural that you would want to pay a lower interest rate amount. Homeowners can hugely lower their monthly payment amounts with an IRRRL.

VA Renovation and Home Improvements Loan

For a property to be purchased with a VA loan, it must meet strict requirements. A VA Renovation and Home Improvements loan can be used to bring an existing property’s standard up to meet the requirements of a VA loan. However, the loan will only cover necessary renovations and improvements to meet VA property standards, not for luxury items. Homeowners wanting to do cosmetic upgrades should look into conventional loan products and then, once completed, consider a cash-out refinance using their VA loan benefits.

The VA loan product suite is an outstanding and often underutilized benefit. If you’re a current or past service member, get in touch, and we will help you assess your eligibility and complete your application – no matter what stage of the homeownership journey you are in.

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