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What is a VA Loan?

A VA loan is a mortgage that is backed by the U.S. Department of Veterans Affairs and issued by private lenders. The key benefits of the VA loan are (1) the ability to purchase with as little as 0% down, (2) better buyer protection through a more rigorous appraisal inspection process, and (3) its relatively low interest rate compared to other types of loan. On the downside, the VA loan has a rather high funding fee, which is added to the loan balance.

For 2020, the VA funding fees are as follow:

  • First-use:
    • For 0% down loans, the funding fee is 2.3% of the loan amount.
    • For 5% to 9.9% down loans, the funding fee is 1.65% of the loan amount.
    • For 10% or more down loans, the funding fee is 1.4% of the loan amount.
  • Subsequent-use:
    • For 0% down loans, the funding fee is 3.6% of the loan amount.
    • For 5% to 9.9% down loans, the funding fee is 1.65% of the loan amount.
    • For 10% or more down loans, the funding fee is 1.4% of the loan amount.

The funding fee is waived if you meet one of the eligibility criteria:

  • You are entitled to or are receiving compensation for a service-connected disability.
  • You are an active-duty service member who has received a Purple Heart.
  • You are a surviving spouse of a veteran who died while serving or from a service-connected disability.

Frequently Asked Questions

Can I use a VA loan for an investment property?

No, a VA loan is meant for primary residence only. However, if you subsequently have to rent out the property for any reason, you are allowed to do so.

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