Home Equity

Making Use Of Your VA Home Equity

Having your own home is a great financial asset. This fact is not lost on banks and other financial institutions who tailor their products and services to their markets. Getting a home equity loan make use of your home's equity as collateral.

To understand better how this kind of loan works, equity is computed as the difference between the value of the home less the amount owed on the mortgage.

The maximum amount of money that can be borrowed is either fixed or determined using other factors like the borrower's credit history, income, and the appraised value of the house, among others.

Understand that the loan is secured by the property. This means it is considered collateral and it is being used to guarantee the loan. This also means the borrower is putting perhaps his most valuable asset at risk of foreclosure when the monthly payments on the loan can not be made anymore.

While the Department of Veterans Affairs does not lend directly, it does provide significant benefits and advantages to veterans who are getting a home loan from a lending institution. A bank or lender provides loans with less restrictive guidelines in return for a guarantee from the DVA against default and a fee for this guarantee is paid by the veteran who is applying for the loan.

For veterans who already have a VA home loan and are considering refinancing, you can do so with the VA's loan program named the IRRRL (Interest Rate Reduction Refinance Loan) or Streamline Refinance. This loan offers a means for current VA homeowners to lower their interest rates. The only cost required by VA is a funding fee of one-half of one percent of the loan amount which may be paid in cash or included in the loan. This loan is available only to veterans who are refinancing their original mortgage.

The IRRRL is a great financial tool in achieving a goal of a lower interest rate. However, it is understood that you cannot receive any cash from the loan proceeds. You are encouraged to contact several reputable banks or lenders since there are likely to be significant differences in their loan terms.

There is an occupancy requirement for an IRRRL but it is different from other kinds of VA loans. For example, when you first got your VA home loan, you had to certify that you will occupy the home. For an IRRRL you only need to certify that you occupied it previously.

If you are looking to refinance and receive cash back to help pay for other expenses, you may want to consider the cash-out refinance. You will have to qualify based on income and credit and your home must have sufficient equity. In addition, the property must be your primary residence and an appraisal is required.

The amount of money received from the new loan exceeds what is needed to pay off the liens, including the first mortgage, may be taken as cash by the borrower for any purpose acceptable to the lender. There are fees but these can be included in the new loan.

The DVA Federal Credit Union offers both savings products and loan products. They have an attractive home equity loan terms aside from this being a tax deductible loan. Though mainly for DVA employees, if you are a Compensated Work Therapy Program Veteran participant, or under the employ of certain veterans' organizations, you are eligible to join.

In addition to the federal benefits given by the DVA, there may also be state benefits for veterans and their dependents. For example, the California Department of Veterans Affairs offers CalVet Loans for buying a home with below market interest rates and either low or no down payment. Veterans who already have a CalVet loan can approach a bank for a home equity loan provided you and the lender submit a Consent to Encumber form. To find out more, it is best to talk to a veterans benefits counselor in your state.

There are also banks and loans companies who specialize in providing loan products geared towards the financing needs of active duty military and veterans. To play safe, check the reputation of the establishment first and consult with the veterans affairs office in your location.