VA loans are mortgage loans designed for veterans and offered by specific lenders. VA loans offer a number of benefits for veterans, such as lower interest rates and the elimination of down payment requirements. It's important to know the following six terms and phrases before applying for a loan to ensure you are familiar with this valuable program.
- Good Faith Estimate (GFE)
This document lists the terms, settlement fees, and closing costs for a mortgage. The form is provided within three business days after the application has been submitted. Those who receive the form are not required to take the loan.
When reading through the application of a VA loan, you may see the word "default," which occurs when the borrower fails to make a payment on a loan. The loan then goes into default, proving that the terms were broken by the borrower.
- Funding Fee
This is a fee that is charged by the U.S. Department of Veterans Affairs, which covers the program's costs. The funding fee can be included in the loan but is not mandatory for those who have a service-related disability. The percentage varies with each individual and is based on the borrower's military category or loan.
- Leave and Earnings Statement (LES)
This document verifies employment for active duty service members. Provided each month, this statement lists a leave status and pay. It's required for approval for a VA loan and is now commonly retrieved online.
- Title Insurance
Title insurance is a mandatory expense that is paid at closing and designed to protect sellers, borrowers, and lenders from former ownership claims that were on the home. It also protects against defects or liens that may be connected to the property. The insurance requires a one-time fee and is active for as long as the borrower has interest on the home.
- Secondary Mortgage Market
The secondary mortgage market is where private investors and government-sponsored enterprises purchase loans and service rights when lenders sell mortgages. It's known to be an expansive market that is liquid. The mortgages are often sold to pension funds, hedge funds, and insurance companies. Borrowers benefit from the secondary mortgage market, as it works to make credit that is widely available to individuals in different regions.