Welcome to our comprehensive guide on VA Adjustable Rate Mortgages, or VA ARM Loans. If you’re a servicemember, veteran, or a surviving spouse, you may have heard about this type of loan. VA ARM Loans are a popular mortgage option for those who want to purchase a home or refinance an existing mortgage. The flexibility of the loans and their unique features make them an attractive choice for many borrowers.
If you’re interested in learning more about VA ARM Loans, you’ve come to the right place. In this article, we’ll cover everything you need to know about these loans, from their benefits and drawbacks to how they differ from other types of mortgages. We’ll also answer some frequently asked questions about VA ARM Loans and provide you with information on how to apply for one.
The Basics of VA ARM Loans
Before we dive into the details, let’s review what a VA ARM Loan is. Essentially, it’s a mortgage loan that has an adjustable interest rate. This means that the interest rate on the loan can fluctuate over time, based on market conditions. In contrast, a fixed-rate mortgage has a set interest rate for the life of the loan.
So, why would someone choose an adjustable-rate mortgage over a fixed-rate mortgage? Well, the main advantage is that adjustable-rate mortgages typically have lower interest rates at the start of the loan. This can make them a more affordable option for borrowers who want to purchase a home but don’t have enough cash on hand for a large down payment.
However, it’s important to note that the interest rate on a VA ARM Loan can rise over time. This means that the borrower’s monthly payment could increase as well. This is something that borrowers need to be aware of before choosing this type of loan.
Benefits of VA ARM Loans
As we mentioned earlier, VA ARM Loans have some unique features that make them an attractive option for many borrowers. Here are some of the benefits:
- Lower interest rates: As we mentioned earlier, the interest rate on a VA ARM Loan is typically lower than that of a fixed-rate mortgage at the beginning of the loan. This can save borrowers money on their monthly payments.
- Flexibility: VA ARM Loans are more flexible than other types of mortgages. Borrowers can choose from different loan terms and adjust their payments based on their budget.
- Lower upfront costs: VA ARM Loans generally have lower closing costs compared to other types of mortgages. This can make them a more affordable option for borrowers who want to buy a home.
- Assumable: VA ARM Loans are assumable, which means that if the borrower sells their home, the buyer can assume the loan.
Drawbacks of VA ARM Loans
While VA ARM Loans have some benefits, they also come with some drawbacks. Here are some of the disadvantages:
- Uncertainty: Because the interest rate on a VA ARM Loan can fluctuate, it can be hard for borrowers to predict how much their monthly payments will be in the future.
- Risk: If the interest rate on a VA ARM Loan increases, the borrower’s monthly payments could become unaffordable.
- Complexity: VA ARM Loans are more complex than other types of mortgages. Borrowers need to understand how the loans work and how to calculate their payments.
- Adjustment Period: There is an adjustment period for VA ARM Loans, which means that the rate can only change once a year. In other words, if market rates increase rapidly, the borrower’s rate may not increase for some time.
How VA ARM Loans Differ From Other Mortgages
VA ARM Loans have some differences from other types of mortgages. Here are some of the main differences:
- Lower Rates: VA ARM Loans generally have lower interest rates than other types of mortgages, such as conventional or FHA loans.
- Assumption: VA ARM Loans are assumable, which means that the loan can be transferred to a new buyer if the borrower sells their home.
- No Mortgage Insurance: VA ARM Loans do not require mortgage insurance, which can save borrowers a significant amount of money over time.
- Eligibility: VA ARM Loans are only available to servicemembers, veterans, and surviving spouses who meet certain eligibility requirements.
The VA ARM Loan Process
If you’re interested in taking out a VA ARM Loan, here’s a step-by-step guide to the process:
- Check your eligibility: Before applying for a VA ARM Loan, make sure you’re eligible. Eligibility requirements vary depending on your military service.
- Gather your documentation: You’ll need to provide documentation to prove your eligibility for the loan, as well as your income, assets, and debts.
- Find a lender: You’ll need to find a lender who participates in the VA Loan program and offers VA ARM Loans.
- Pre-qualify: The lender will pre-qualify you for the loan and provide you with a pre-qualification letter.
- Select a home: Once you’ve been pre-qualified, you can start looking for a home that meets your needs and budget.
- Submit an offer: When you find a home you like, you’ll need to submit an offer to the seller.
- Underwriting: The lender will underwrite your loan and make a decision on whether to approve or deny it.
- Closing: If your loan is approved, you’ll attend a closing where you’ll sign the final paperwork and receive the keys to your new home.
The Costs of a VA ARM Loan
Like all mortgages, VA ARM Loans have costs associated with them. Here are some of the costs you can expect:
VA Funding Fee
Up to 3.6% of the loan amount
Up to 1% of the loan amount
It’s important to note that some of these fees may be negotiable, depending on the lender and the loan. Be sure to shop around and compare offers from different lenders to get the best deal.
What is the difference between a VA ARM Loan and a fixed-rate VA Loan?
The main difference is that a VA ARM Loan has an adjustable interest rate, while a fixed-rate VA Loan has a set interest rate for the life of the loan.
How often can the interest rate on a VA ARM Loan change?
The interest rate on a VA ARM Loan can change once a year, during the adjustment period.
What is the VA Funding Fee?
The VA Funding Fee is a fee charged by the VA to help offset the cost of the VA Loan program. The fee can vary depending on the type of loan and the borrower’s military service.
Can I refinance my VA ARM Loan?
Yes, you can refinance your VA ARM Loan into a fixed-rate VA Loan or another type of mortgage if you choose.
What is the maximum amount I can borrow with a VA ARM Loan?
The maximum loan amount for a VA ARM Loan is the same as for a fixed-rate VA Loan. The amount varies depending on where you live and how much entitlement you have.
What is the minimum credit score required for a VA ARM Loan?
There is no minimum credit score requirement for a VA ARM Loan. However, lenders may have their own credit score requirements.
How do I apply for a VA ARM Loan?
You can apply for a VA ARM Loan through a lender that participates in the VA Loan program. You’ll need to provide documentation to prove your eligibility for the loan.
Can I use a VA ARM Loan to buy a second home or an investment property?
No, you can only use a VA ARM Loan to buy a primary residence.
How long does it take to close on a VA ARM Loan?
The closing process for a VA ARM Loan can take anywhere from 30 to 45 days, depending on the lender and the complexity of the loan.
What are the eligibility requirements for a VA ARM Loan?
To be eligible for a VA ARM Loan, you must be a servicemember, veteran, or surviving spouse who meets certain requirements related to your military service.
Can I use a VA ARM Loan to purchase a mobile home?
Yes, you can use a VA ARM Loan to purchase a manufactured home that meets certain requirements.
What happens if I can’t make my payments on a VA ARM Loan?
If you can’t make your payments on a VA ARM Loan, you should contact your lender right away. They may be able to work out a payment plan with you or offer other options to help you stay in your home.
Can I get a VA ARM Loan if I have a bankruptcy or foreclosure on my record?
Yes, you may still be able to get a VA ARM Loan if you have a bankruptcy or foreclosure on your record. However, there may be additional requirements or restrictions.
VA ARM Loans are a popular mortgage option for servicemembers, veterans, and surviving spouses. They offer flexibility and lower interest rates than other types of mortgages, but they also come with some risks and complexities. If you’re interested in taking out a VA ARM Loan, be sure to shop around and compare offers from different lenders. And don’t forget to consider your long-term financial goals and whether an adjustable-rate mortgage is the right choice for you.
Thank you for reading our guide on VA ARM Loans. We hope you found it helpful and informative. If you have any more questions, feel free to reach out to us.
The information in this article is for educational purposes only and should not be construed as financial or legal advice. We recommend that you consult with a licensed professional before making any financial decisions.