For those that qualify, the VA Loan Program is rated as the most cost-effective mortgage. VA loans are backed and supported by the U.S. Department of Veteran Affairs and designed to assist veterans, active-duty military, and a few other select groups to own their own homes at an incredibly affordable cost.
The VA loans do not require mortgage insurance or a down payment, and the rules are lenient about qualifying, along with a host of other benefits. Below is all the information that you need on how to qualify and use a VA loan.
We know you want to make the best decision when it comes to your home purchase (and you want to save the most money too...). This guide will help you understand what to expect before your mortgage, what you'll need during the process, and what to expect after your loan is complete.
The majority of other programs for home loans require the borrower to make a sizable down payment in order to purchase a home. The VA home loans are an exception to this rule. Instead of having to pay a 5, 10, 20% (sometimes more), of the purchase price of the home in cash upfront, with the VA home loans, it becomes possible to finance 100% of the asking or purchase price. VA home loans offer a no-money-down mortgage opportunity.
2 – No Mortgage Insurance
In most cases, mortgage insurance is a requirement when the down payment is under 20%.
This type of insurance, better known as PMI (private mortgage insurance) applies to conventional loans and MIP (mortgage insurance premium) for the FHA loans. This type of insurance provides a layer of protection to a lender should the borrower default on their loan. VA loans do not require mortgage insurance or down payments. This is what makes the VA-backed home mortgage extremely affordable upfront as well as overtime.
3 – VA Loans Are Backed by a Government Guarantee
There is a good reason as to why the VA loans are linked to very favorable terms.
The federal government offers a “guarantee” on these loans, which means a percentage of these loan amounts can be paid back to a lender if you default on your loan, regardless of the reason. This type of guarantee enables and encourages the lenders to provide these VA loans with extremely attractive terms.
4 – You Can Shop Around for the Best VA Loan Rate
VA loans are not funded or originated by the VA.
They are also not loans that the government offers. At the same time, the VA itself does not set the rates for VA loans. Rather, the VA loans are on offer by mortgage lenders, credit unions, savings-and-loans institutions, and U.S. banks, with each setting its own VA loan fees and rates. This makes it a simple task to compare and shop around for a loan, allowing you to choose one of the VA loans that match up to your budget.
5 – VA Loans are Not Linked to Prepayment Penalties
VA loans will not put restrictions on you if you decide to sell your home partway through the loan term.
There are no prepayment penalties or early-exit fees, regardless of when you make a decision to sell the property. There are also no restrictions when it comes to refinancing your VA home loan. This means you have the option to switch over to a non-VA loan or refinance your current VA loan into one of the other VA loans through the IRRRL, which stands for the Interest Rate Reduction Refinance Loan program whenever you like.
6 – VA Mortgages are Available In Many Types
VA loans can have either adjustable rates or fixed rates.
You can also choose to use a VA loan to purchase a condo, house, duplex, manufactured home, new-built home, along with other property types. You can also use your VA loan to refinance your current mortgage, make improvements or repairs to your property, or improve the energy efficiency of the home. There are many options to choose from and VA-approved lenders can assist you with your decision.
7 – It is Much Easier to Qualify for a VA Loan
Similar to the other types of mortgages, VA loans also require sufficient income (to make sure you can cover the monthly payments), a favorable credit history, and specific documentation.
However, when you compare these loans to many others, the guidelines for a VA loan are usually more flexible. This is due to the VA loan guarantee. The Department of Veteran Affairs is focused on making it as easy as possible for veterans, the military, and the spouses of the military that qualify to refinance or purchase homes.
8 – The Closing Costs on VA Loans are Lower
The VA has limited what a lender can charge for closing costs to a VA loan applicant.
This is one of the other ways that VA loans become more affordable when compared to conventional and FHA loans. The money that can be saved on the closing costs could be used for moving costs, buying furniture, and more.
9 – There is Funding Fee Flexibility Offered by the VA
The VA loans do require upfront costs, also known as a “funding fee”, according to the loan amount, your eligible service type, the size of your down payment, in addition to other factors.
However, you won’t have to pay your funding fees in cash. The VA allows this fee to be included in the financing of the loan, which means at closing nothing will be due. It is also important to know that not every VA borrower will be liable for this fee. The VA funding fees can be waived for the veterans that are receiving VA disability compensation, or for surviving unmarried spouses of the veterans that passed away due to service-connected disabilities or while they were in service.
10 – The VA Loans are Assumable
The majority of the VA loans are “assumable”. This means it is possible to transfer your VA loan to another buyer that is also VA eligible.
The “assumable” loans are often a great advantage if you ever decide to sell your property, particularly in a mortgage-rate environment that continues to rise. When your loan is accompanied by the current low rates, and the market rates start to rise over the years, the “assumption” features of a VA will become a lot more valuable.
Where Are You Looking to Buy a Home?
VA Rates, Eligibility and Service
VA Loan Rates
The mortgage rates on VA loans are extremely low.
VA loans are often rated among the lowest-risk mortgage types currently available.
This type of safety provides banks with a way to offer home loans to veterans at much lower rates.
In fact, the VA rates are over 25 basis points (0.25%) lower, when compared to conventional rates, according to the data derived from Ellie Mae, a mortgage software firm. Many of the loan programs typically require higher credit scores and down payments when compared to VA home loans. In an open market, VA loans should be carrying higher rates since the lending guidelines are more lenient, with higher perceived risks.
Yet the efforts of the Veteran Affairs to make sure veterans are able to secure home loans have resulted in lowered risks for lenders and banks along with borrowing costs that are lower for any eligible veteran.
How Do I Know If I am Eligible for a VA Home Loan?
VA loans are not only available to veterans. Other military members are also eligible for these loans.
The eligible VA borrowers include:
Active-Duty Service Members
Midshipmen at the U.S. Naval Academy
Surviving Spouses of Veterans
Members of the National Guard
Officers at the National Oceanic And Atmospheric Administration
Cadets at the U.S. Air Force, Coast Guard Academy, or Military
Minimum terms of service are usually a requirement.
What Is The Minimum Service Term Required For VA Mortgages?
VA loans are typically made available to veterans, active-duty service members (unless dishonorably discharged), and in certain cases, surviving spouses or family members.
In order to qualify, you are required to meet specific service requirements. These include:
You have served active duty over 90 days during wartime
You have served active duty over 181 days during peacetime
You have served for 6 years with either the National Guard or Reserves
You haven’t remarried and your spouse died while on active duty
Once you are eligible for a VA loan program, your eligibility never expires. The veterans that have earned VA entitlement many years ago, still use these benefits to purchase homes.
About The VA Loan COE
What Is a COE?
To prove to mortgage lenders or the banks that you are VA-eligible, you will need to supply a COE (Certificate of Eligibility). Lenders can usually acquire a COE on your behalf online, within minutes.
How to Get a COE (Certificate of Eligibility)
In most cases, getting your Certificate of Eligibility is a simple task. All that you need to do is ask your mortgage lender to order your COE through the VA’s automated system. All the VA-approved lenders have the authorization to do this. You can also order the certificate on your own through the VA benefits portal. If the VA online system is not able to issue the COE, you will be required to provide your DD-214 form to either the VA or your lender.
Does a COE Mean That I Qualify for a VA Loan?
No, if you have a COE, it is not a guarantee that you will be approved for a VA loan. You are still required to qualify for your loan according to the VA mortgage guidelines. Guarantees on VA loans refer to the promise made by the VA to a lender that they will make a repayment should the borrower default.
How to Qualify for a VA Mortgage
VA Loan Qualification Vs. Eligibility
When you are “eligible” for VA loan benefits according to your military affiliation or status, it does not mean that you will actually “qualify” for a VA home loan. You are still required to qualify according to your income, debt, and credit.
7 Steps to Consider When Purchasing Your Home
Check this Guide Out! It is a must read if you are about to buy a house.
What Is The Minimum Credit Score Required For VA Loans?
The VA has not established a “minimum” credit score when it comes to VA mortgages. However, most of the lenders that offer VA loans require a minimum FICO score of 620 or higher. We suggest applying with several lenders when your credit score is an issue. Even the VA mortgage lenders that will allow for a lower credit score, won’t accept “subprime credit”.
The underwriting guidelines for VA loans state that the applicants should have paid all their obligations timorously for a minimum of 12 months (most recent), to be regarded as a satisfactory credit risk. Additionally, the VA typically requires a waiting period of 2 years following a Chapter 7 foreclosure or bankruptcy before they will insure a home loan.
Any borrower in Chapter 13 is required to have made a minimum of 12 on-time payments, along with securing approval from a bankruptcy court.
VA Loan Debt-to-Income Ratio
The relationship that occurs between your income and your debts is known as your DTI, or debt-to-income ratio.
A VA underwriter will divide your debts that you are liable for monthly (such as credit cars, car payments, any other accounts, and your “proposed” housing expense) by your before-tax (gross) income to arrive at this figure.
When your before-tax income is $4,000 a month
Your total monthly debts come up to $1,500 (which will include your new mortgage, homeowners insurance, property taxes, along with all your other debt payments)
Your DTI will be 37.5% (1,500 divided by 4,000 = 0.375)
If your DTI exceeds 41%, the lender will need to apply added formulas to work out whether you qualify according to the residual-income guidelines.
What Are The Residual Income Rules For VA Loans?
VA underwriters usually perform a series of calculations that may affect your approval for a mortgage.
Your estimated monthly utilities, estimated tax on your income, and the city or area that you live in, are all factored in so that the VA can work out a figure that best represents your actual or “true” costs-of-living. This figure is then subtracted from what you earn to arrive at your “residual income”, which means the money that you are left over with each month. Residual income calculations can be compared to “real-world” simulations of a person’s living expenses. This is one of the best efforts of the VA, to make sure your homeownership experience is as stress-free as possible.
Below is an example that explains how “residual-income” works:
A family of 4 purchases a 2,000 square-foot property, on a $5,000 monthly income. Debt payments plus future home payments = $2,500 Minus monthly utilities (estimated) at $0.14 per square foot = $280 Minus monthly income taxes (estimated) = $1,000
The residual income calculation works out to $1,220
Here is how residual-income to a VA residual-income requirements compare for families of 4:
Midwest Region: $1,003 Northeast Region: $1,025 West Region: $1,117 South Region: $1,003
The borrower in this example exceeds all the VA’s residual-income standards regardless of where they decide to live.
Despite the fact that the debt-to-income ratio of the borrower is 50%, the borrower may still receive approval for a VA loan.
How to Qualify for a VA Loan With Part-Time Income
It is possible to qualify for VA financing even when you have multiple jobs or part-time employment. You will need to show that you have earned a consistent “part-time” income over the last 2 years, along with stability when it comes to how many hours you have worked. The lender will also need to clarify that the income you are receiving appears stable.
VA Loan Limits And Funding Fees
What You Need To Know About VA Funding Fees
The VA charges up-front fees to match up to the costs of these programs and to make sure it remains sustainable for future years. The veteran will pay a “lump sum” which will vary according to the down-payment amount and the purpose of the loan. These fees are typically included in the loan, which won’t add to the money that is required to close your loan.
Funding Fees For A VA Home Purchase
Down Payment %
First Time Use Fee
Subsequent Use Fee
Active-Duty, National Guard, and Reserves
5% or More
10% or More
VA Loan Limits
The Blue Water Navy Vietnam Veterans Act of 2019, has repealed the limits on VA loans. This means there are no maximum amounts that home buyers can apply for when it comes to a VA loan (as far as the VA is concerned). However, private lenders often have their own set of limits. It is best to check with the lender that you decide to use for your VA loan, to find out about their “local” conforming limits on loans.
What Types of Properties Are Eligible?
The VA mortgages are typically flexible when it comes to the property types you can’t and can buy. You can use a VA loan to purchase a:
Four-unit, triplex, or duplex property
Can You Purchase a Multi-Unit Home With a VA Loan?
The VA home loans permit borrowers to purchase four-plex, triplex, or duplex properties with 100% financing, provided the borrower stays in one of these units. Purchasing a property that contains two or more units could be a challenge. Banks and mortgage lenders regard these property types as riskier when it comes to financing when compared to single-family, traditional homes. If you would like to apply for one of these loans, you would need to prove that you are a strong borrower.
The VA underwriter will need to ensure you have sufficient reserves or emergency savings, before closing on the property. This will ensure that you will have sufficient funds to keep up with your mortgage payments if one or more of your tenants defaults on their rent or when they move out suddenly. The minimum that is required “after closing” is typically worked out to cover 6 months of your mortgage payments. This will cover PITI (principal, interest, taxes, and insurance).
The lender will also ask you whether you have had any experience as a landlord before, or any skills or experience when it comes to renting and maintaining properties. If you have no prior experience, you could sidestep this problem if you can hire a professional property management agency. But they will depend on the lender you have approached.
Lenders also look at either the potential income or income of the rented units, by using the opinion of an appraiser of what each unit can fetch or using the existing rental agreement. They typically take around 75% of this amount to afford or offset the mortgage payments when they work out your expenses (monthly).
VA Loans for Second Homes
The federal regulations have put a limit on the loans that the Department of Veterans Affairs guarantees to only primary residences.
A “primary residence” is defined as the property that you will reside in “most of the year”. In other words, if your residence is out-of-state and you live there for over 6 months in a year, then this property, regardless of whether it is a retirement property or vacation home, is considered as your “official primary residence”. This is why VA loans have become so popular for senior military borrowers.
VA Loans and Rental Properties
You are not allowed to use your VA loan to purchase rental properties. However, you can use your VA loan if you want to refinance a rental home that you once used as your primary residence.
When it comes to buying a home, to secure your VA loan you need to certify or guarantee that you plan to occupy this property as your main residence. If you buy a four-unit, triplex, or duplex apartment, you are required to live in one of these units. Only then you will be permitted to rent the rest of the units out.
The only exception to this particular rule is known as the VAs IRRRL (Interest Rate Reduction Refinance Loan). These loans are also called the VA Streamline Refinance, which you can use to refinance your existing VA loan on a property that you once lived in or currently live in.
Buying a Condo with a VA Loan
The VA maintains the condo projects that are approved in a list, that you can buy a unit from using a VA loan. You can visit the VA website where you can find many condominium complexes that are approved across the U.S.
If you are interested in buying a condo and you are already VA-eligible, just ensure that the complexes that interest you have been approved. As a borrower, you won’t be able to get a complex VA-approved, as these decisions are made by the homeowner’s association or a management company. If you find a condo that you really like and it does not appear on the approved list, you can still use other financing options such as a conventional or FHA loan, or look for another property. The condo should also meet conventional or FHA guidelines if you decide on using these financing types.
Veteran Mortgage Relief with VA Loans
The VA, or the U.S. Department of Veterans Affairs, offers home-retention help. This is when the VA will intervene if a veteran struggles to keep up with their monthly home loan payment.
The VA will work with the loan servicers to provide solutions to the veteran (other than foreclosure). In the fiscal year 2019, the VA made more than 400,000 contact actions in order to reach loan servicers and borrowers. The goal involves working out a mutually-agreeable repayment solution for the lender and the borrower.
Over 100,000 veteran homeowners managed to avoid foreclosure in 2019, thanks to these efforts. This initiative has also saved the “taxpayer” around $2.6 billion. This also allows many veterans to secure another chance to secure their homeownership.
When Should You Not Use a VA Loan?
If you have a down payment of 20% or more and your credit is good.
One of the main benefits of VA home loans is that you won’t have to worry about having to pay mortgage insurance. However, the VA guarantee is not free from charges. Borrowers are required to pay upfront funding fees, with most choosing to add this into their overall loan amount. These fees often range from 1.4% to 3.6%, which usually depends on the percentage of the downpayment and if the borrower has used his/her VA mortgage eligibility before. The typical fee is usually around 2.3%.
For example, on a purchase of $200,000, a 2.3% fee equals $4,600.
The buyers that are able to put 20% down and choose one of the conventional mortgages can avoid upfront fees and mortgage insurance. For a military home buyer, the VA funding fee could prove to be one of those unnecessary expenses. The Exception: The mortgage applicants that have an income or credit rating that matches the VA guideline, but not a conventional mortgage might still choose a VA loan.
If You are on the CAIVRS List
To become eligible for a VA loan, applicants must be able to prove that they paid any previous government-backed debts on time and that their tax payments are up to date.
The CAIVRS, which stands for Credit Alert Verification Reporting System, is a type of database that contains the names of consumers that have failed to keep up with their government obligations (defaulted). These individuals will not be able to apply for a VA home loan.
When You are a Non-Veteran Coborrower
Veterans may apply for a home loan with a “non-veteran” that is not their wife or husband (spouse).
This is usually acceptable but is not always regarded as the ideal choice. If you are the “veteran”, your income needs to cover 50% of the loan payments. The income of the “non-veterans” is not permitted for use to compensate for the insufficient income of the veteran. At the same time, if a non-veteran owns 50% of the loan, the VA will only guarantee 50% of that amount. Lenders also usually require a down payment of 12.5% to cover the “non-guaranteed” portion.
On the other hand, the Conventional 97 mortgage, allows for a down payment as small as 3%. Another mortgage option with low-down-payment options included the FHA home loans, where 3.5% down is usually acceptable.
The USDA home loans offer similar rates to the VA loans and also require a “zero” down payment. However, these properties must fall under USDA-eligible areas.
If you are planning to apply for a loan with a Non-Veteran, these loans may be a better option.
When You Apply for a Loan with a Credit-Challenged Spouse
Some of the states have community-property laws, where the VA lenders are required to factor in the financial obligations and credit rating of your partner (spouse). These rules are applicable even when she or he will not appear on the title of the home or even your mortgage.
These states include the following:
If your spouse has less-than-perfect credit or when they owe alimony, maintenance, or child support, it can make it harder for you to achieve approval for a VA home loan. If you plan to apply for a mortgage on your own, rather go for one of the conventional loans. The financial status or history of your spouse won’t be considered when he/she does not appear on your loan application.
When You Want to Purchase an Investment Property or Vacation Home
The main aim of VA financing involves assisting active-duty service members or veterans to purchase and reside in a home of their own. These loans are not for building real-estate portfolios. A VA loan is only for a primary residence, so when you are looking to buy a vacation home or ski cabin, we suggest going for one of the conventional loans.
When You Want to Buy a High-End Home
Since the start of January 2020, there are now no limits when it comes to the mortgage size the lenders can approve.
However, lenders might have their own established limits when it comes to VA loans, so first check with the lenders before you make an application for a larger VA loan.
The VA Mortgage Program And Spouses
What Type Of Spouse Is Eligible For A VA Loan?
If a service member dies before she or he uses this benefit, the eligibility will be passed onto the un-remarried spouse (in most cases).
To be eligible, the surviving spouse, of a service member that has passed away, must have:
Died due to service-connected disability
Died while on active duty
Been MIA (missing in action), or a POW (prisoner of war), for a minimum of 90 days
Been a completely disabled veteran for a minimum of 10 years before their death
Remarried spouses are also eligible if they marry after turning 57 after or on December 16, 2003.
In the above cases, surviving spouses are allowed to use VA loan eligibility if they want to purchase a house without a down payment, just as veterans would have.
What are the VA Loan Benefits for Surviving Spouses?
A surviving spouse has additional benefits and is exempt from VA funding fees. This means that the monthly payments and the loan balance are usually lower.
Surviving spouses also become eligible for VA Streamline Refinance if they match up to these guidelines:
The surviving spouse was still married to a veteran when he/she died
The surviving spouse appears on the “original” VA loan
VA Streamline Refinancing is usually not made available if the veteran that passed away was the sole applicant on the “original” VA loan, even when he/she married after purchasing the home.
In these instances, a surviving spouse may still qualify for a VA cash-out loan or non-VA refinance. The cash-out mortgages through the VA require that the spouse of a military member matches the eligibility requirements of a home purchase. In these cases, surviving spouses are allowed to access the equity of the home to raise money for any purposes, or to even pay a conventional or FHA loan off to do away with mortgage insurance.
How to Qualify if You Pay for or Receive Alimony or Child Support
Purchasing a property once you are divorced is never an easy task.
If before you got divorced, the household you lived in was a joint income, your spending power becomes less and your monthly income is also less when it comes to applying for a VA home loan. With a lower income, it becomes more difficult to match the VA Home Loan Guaranty’s DTI (debt-to-income) guidelines or the VA residual-income requirements that relate to your area. Receiving child support or alimony may be able to counteract the “loss of income”.
The banks and mortgage lenders won’t require that you provide information relating to your divorce agreement when it comes to the child support or alimony terms. But if you are prepared to disclose this information, it could count in your favor when it comes to qualifying for your home loan. Each of the VA-approved lenders treats child support and alimony income differently. In most cases, you will need to furnish copies of the divorce settlement or any other type of court paperwork that supports your child support or alimony payments. Lenders will assess whether these payments are reliable, stable, and set to continue for at least the next 36 months.
You might also be asked to provide proof that child support and alimony payments were made reliably in the past, so your lender can use this income in your VA loan application. If you are the one that is paying child support or alimony, your DTI (debt-to-income) ratio may be harmed. You may be losing the 2nd income associated with a dual-income household, and the fact that you are having to make additional payments that now count against you.
The VA-approved mortgage lenders usually make very careful calculations when it comes to these payments. It is still possible to receive approval for your VA loan when you are making these payments, but it is harder to prove that you are earning an adequate monthly income.
About VA Loan Assumption
How to Take on (Assume) Another Individual’s VA Loan
When assuming a mortgage home loan, you will be taking the monthly payments over from a current homeowner.
Savings On VA Loan Assumption
If a seller has financed $200,000 for their house in 2013 and the interest rate was set at 3.25% on a fixed, 30-year loan. Using this example, the interest and principal payment would be $898 per month.
Let us assume that the current fixed rate for 30-years averaged at 4.10%
If you had to finance at 4.10% on an amount of $200,000 your interest and principal monthly payments would be around $966 per month. At the same time, the seller has paid 4 years of the overall loan term, which means they have paid around $25,000 in interest for this loan.
When you assume the loan, you could save as much as $35,560 over the 30-year loan, thanks to the differences in the interest rates. You could also save around $25,000 due to the seller already paying off some of the interest. This amounts to a total saving of close to $60,000.
How Do You Assume a VA Loan?
There are 2 ways that you can currently assume a VA loan.
When the “new” buyer is a veteran that qualifies who “substitutes” his/her VA “eligibility” for “eligibility” of a seller. The “new” buyer of the home qualified through the VA standards for mortgage payments. This is usually the safer method for a seller since it allows these loans to “be assumed” with the reassurance that the buyer becomes responsible for this loan, while the seller will no longer hold responsibility when it comes to the loan.
The lender or/and the VA must first approve loan assumptions. The loans that are serviced by lenders that have “automatic authority” may process an assumption without the need to send them to the VA Regional Loan Center. For the lenders that do not have “automatic authority”, these loans must first be sent to a VA Regional Loan Center for approval. These processes can take up to several weeks. Once a VA loan is assumed, it is the responsibility of the servicer to ensure the homeowner that has assumed the property matches up to both the lender and VA requirements.
What Are VA Loan Assumption Requirements?
For VA mortgage assumptions to occur, these conditions need to be met:
The current loan has to be current. When not, any past due amount should be paid before or at closing.
The new buyer has to qualify according to VA income and credit standards.
The buyer has to assume all the mortgage obligations, which include repayments to the VA should the loan go into default.
The new owner or original owner is required to pay the funding fee of 0.5% of the current principal-loan balance.
Processing fees should also be paid up in advance (including the costs of the credit report).
How to Find Assumable VA Loans
There are many ways for new home-buyers to find assumable VA loans.
Print media (believe it or not), is still going. Some of the home sellers will advertise an assumable property in real-estate publications or the newspaper. There are also several online resources to find an assumable mortgage home loan. There are also websites such as Zumption.com and TakeList.com that provide homeowners with ways to advertise their homes to buyers that are interested in assuming a loan. With the assistance of MLS (Multiple Listing Service), real-estate agents are also still excellent resources for different types of home buyers.
This also applies to the home buyers that are searching specifically for an assumable VA loan.
How to Apply for a VA Loan
It is fast and easy to ask a lender to access your COE (certificate of eligibility) to ensure you are eligible for a VA loan.
Many of the mortgage lenders and banks provide VA home loans. So you can compare the rates from a variety of different lenders. In addition to this, VA-specific mortgage lenders in most cases are among the lowest-priced and highest-rated. Here are some we suggest checking out.
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