What Are VA Mortgage Equity Reserves?

When you use a VA loan to finance a home purchase, you’re able to borrow the full amount of the purchase price from your lender. You don’t have to worry about making a down payment or coming up with money upfront to secure the loan. Instead, the government guarantees a portion of the loan as a benefit of you serving in the armed forces. But there’s more to your VA mortgage than the amount you borrow. You also start building equity reserves. Here’s what you need to know about these reserves.

Reserves Increase Over Time

When you take out a VA mortgage, you’re expected to make monthly payments to the lender for the set term of your loan. Part of those payments goes to the interest rate on the loan, but a larger portion of it goes toward repaying the principal. The principal of your VA loan is the amount you borrow to buy the house plus any associated fees.

The more payments you make, the more that principal amount goes down. You’ll end up owing less over time and will start to build something called equity in your home. Equity refers to the part of your home’s value that you own outright—this is the amount of the loan’s principal that you’ve paid off. The more payments you make on the VA mortgage, the more equity you build in your home. This means your equity reserves keep increasing over the life of your loan as long as you continue to make monthly payments.

You Can Use the Equity If Needed

Think of your equity reserves as cash you can access if you absolutely need to. If something happened and you needed money to cover a home renovation or unexpected repair costs, you can trade that equity for another loan.

Keep in mind that this isn’t something you should do lightly. You’re using the money you’ve already paid off to take out another loan. You want to try to preserve the equity you building your house for as long as possible.

Discuss Your Loan Options Today

If you’re interested in using a VA mortgage to refinance a house you bought with a traditional loan or you just want more information on how to use the equity you have to pay for upcoming projects, reach out. Our experienced team is on hand to help you get the most out of your mortgage.