VA loans have evolved over the years in more ways than any other loan type. Part of the original G.I. Bill of 1944, the VA loan allowed for returning veterans of WWII buy a home without a down payment needed. This was a big deal back then as down payments were required on most every mortgage loan and soldiers really didn’t have all that much time to save money every month for a down payment.
During this span veterans applied for a VA loan directly with the Department of Veteran’s Affairs and as you might imagine things didn’t always go as planned as the loan application worked its way through the bureaucratic mortgage approval process. It would take weeks to get an approval and the VA appraisers would be used that weren’t familiar with the city much less the neighborhood. Later, the VA allowed approved lenders to not only approve the entire VA loan in house but also order the necessary appraisal from an appraisal management company and are approved much like any other loan. And this similarity isn’t limited to who approves the loan. VA loans also offer an array of mortgage options just as conventional loans provide.
VA lenders offer fixed rate loans and a form of adjustable rate mortgages, or ARMs, called hybrids. A fixed rate loan means the interest rate is fixed over the entire life of the loan and will never change. The loan term can be as short as 10 years or as long as 30 in five year increments of 10, 15, 20, 25 and 30 year terms.
At the same time, VA lenders also offer hybrid ARMs. A hybrid ARM is an adjustable rate mortgage that has an initial fixed rate that later changes into an adjustable rate loan that can adjust annually. A hybrid loan might be fixed for 3, 5, 7 or 10 years before changing into an ARM and appear as 3/1, 5/1, 7/1 and 10/1. The shorter the initial fixed term, the lower the interest rate. A 3/1 hybrid ARM will have a slightly lower rate than a 10/1 for example. So why would someone choose a hybrid over a fixed rate loan? Won’t the loan eventually turn into an adjustable rate? Yes, but hybrid rates are lower than their fixed rate cousins and borrowers can choose a hybrid if they don’t plan to keep the mortgage longer than the initial fixed rate term.
So yes, VA loans offer both fixed and adjustable rate mortgages but they also offer more than you might first had realized. To see which option is best with you, speak with a loan officer who will walk you through the decision process.
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