A VA loan is a benefit of military service for eligible veterans, service members, and surviving spouses. It allows you to qualify for a low-cost mortgage when you’re looking to purchase or refinance, even if your credit isn’t perfect. VA mortgages DO NOT require a down payment and offer a great benefit to those that are on active duty or have been honorably discharged from military service. You can also finance up to 100% of the value of your home when refinancing.
The Veterans Administration does not issue VA mortgage loans, but they do determine who qualifies for one and which lenders can issue them. VA loans typically pose less of a risk to mortgage lenders because they’re backed by a government agency.
VA loans are considered a government loan. They offer many advantages over conventional loans, including lower interest rates, more lenient borrowing requirements, and no down payment. VA loans also never have monthly mortgage insurance, however, may include what is called a Funding Fee.
Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage types.
Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:
You’ve served 181 days of active service during peacetime.
You’ve served 90 consecutive days of active service during wartime.
You’ve served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.
If you're the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability you may qualify. You generally cannot have remarried, although there are exceptions.
A Certificate of Eligibility (COE) is a document that shows your mortgage broker that you’re eligible for a VA home loan. To get a COE, you need to demonstrate proof of service. The proof you need to submit varies based on whether you’re an active-duty military member, a veteran, a surviving spouse, etc.
If you’re eligible, Advanced Funding Home Mortgage Loans can help you secure your COE.
Once you’ve verified that you meet the service requirements for a VA loan, you need your income, assets and credit to check out, as well as the property you’re buying.
VA loans can also be used on condos and manufactured homes, but not all lenders will finance loans for these property types. If you’re getting your loan with Rocket Mortgage, you can get a VA loan for a condo, but not for a manufactured home.
The property you buy must be your primary residence within 60 days of purchase. You can’t use a VA loan for a vacation or investment property, but you can use it to buy a one-to-four family home if the eligible member uses it as a primary residence.
The VA doesn’t require a specific minimum credit score for VA loans, so the credit requirement varies by lender. In most cases the minimum median credit score for a VA loan required by lenders is 580.
Your lender will evaluate your debt-to-income ratio (DTI) when considering your ability to pay back the loan. Your DTI represents how much of your monthly income goes toward paying back debt. The VA does not set limits on your DTI, although some lenders might.
The VA doesn’t limit how much you can borrow, but there is a cap on the VA’s guarantee. That’s the amount of money they’ll cover if you default on your loan. According to the VA, loan limits may be limited under certain circumstances.
Certain high-cost areas have higher limits. If you need a loan higher than that amount, you may be able to look into a VA jumbo loan, which doesn’t require a down payment and may offer a lower rate than regular jumbo loans.
VA loans are one of the few loan options that don’t require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.
For example, they may require that you have a higher credit score if you’re putting down less than 10%.
It’s important to keep in mind that “no down payment” doesn’t mean “zero cost.” Here are some other VA loan costs, akin to closing costs due at a conventional mortgage closing, to be prepared for, even if you’re putting 0% down: Here’s a glance at just a few of them:
Most people who get a VA loan are required to pay a funding fee, which covers the cost to taxpayers. The VA funding fee ranges from 2.3 – 3.6% of your loan amount.
The cost of the fee is determined by your type of service, the size of your down payment, whether it’s the first-time you’re getting a VA loan and whether you’re buying or refinancing the property. Surviving spouses, veterans who receive disability and Purple Heart recipients serving in an active-duty capacity are exempted from paying a funding fee.
Don’t worry, though. In most cases, if you don’t have the money up front, the VA funding fee can be rolled into your mortgage.
Some loans require you to have additional money in the bank that you’re not using for the loan. This ensures that you’ll be able to make payments once your loan closes. The amount of leftover funds you’ll need is determined by the cost of your mortgage payment, including principal, interest, taxes and insurance. Although it’s not always required, it’s always a good idea to show reserves equal to 2 months’ worth of mortgage payments.
VA loans have many benefits over conventional loans or FHA Loans. Among them are potentially lower interest rates, no down payment requirement, no mortgage insurance, easier credit requirements, and additional pluses for disabled veterans.
Because they’re backed by the government and carry lower risk for lenders and investors, VA loans typically have lower interest rates than conventional loans, particularly for borrowers with credit issues.
VA loans are one of two major mortgage options (the other is the USDA loan for rural home buyers) that don’t require a down payment. This means you’ll need less money up front, being able to save the extra or spend it on home furnishings and projects.
You don’t need any equity to refinance your VA loan into a lower rate. In fact, with a VA Streamline Loan, you can refinance for more than your home’s value for changing your term or lowering your rate. This means you can refinance even if you owe more on your home than it’s worth.
VA loans don’t require Private Mortgage Insurance (PMI). PMI is mortgage insurance on conventional loans that a lender may require you to pay if you do not put at least 20% down. Not having to pay PMI can save you between 0.35% and 1% of your loan amount per year until you reach 20% equity.
VA loans allow you to qualify with a higher debt to income (DTI) ratios than other mortgage programs.
If your score is at least 580 but less than 620, you will be required to have lower debt rations.
The VA loan is the only program that lets you access 100% of your equity in a cash-out refinance, a key difference from other options. You may be required to have a higher credit score to do this. Otherwise, you can take out up to 90% of your home equity if you have a lower median score.
In addition to standard VA loan benefits, disabled veterans also have access to other benefits as well.
Disabled veterans are exempted from the VA funding fee. To qualify for the exemption, you must currently receive some form of disability benefits. Your level of disability is irrelevant.
This exemption can save veterans or their surviving spouse thousands of dollars. For example, if you buy a home worth $200,000, you might pay as much as $2,800 – $7,200 in VA funding fees when you close. Disabled veterans can avoid this fee.
Do you have a disability that affects your mobility or sight? You may qualify for a SAH grant.
SAH grants can go toward constructing a special home designed to fit the needs of the disabled individual. Or they allow you to modify an existing home to make it more accessible. SAH grants can also pay the unpaid balance of an adapted home already purchased without VA grant assistance.
Additional information can be found on the VA benefit website. Here you can find out how to apply and the amount you may be eligible for. You may use the grant up to three times – as long as your disability qualifies. Because the SAH is a grant and not a loan, you don’t need to pay it back.
Disabled veterans may also qualify for a Temporary Residence Adaptation (TRA) grant to add modifications to your property that make it easier to navigate if you live with a family member. Like SAH grants, you won’t need to pay back your TRA grant, which makes them a powerful tool for veterans with mobility-related disabilities.
Property taxes fund things like libraries, fire departments, and local road and development projects. Disabled veterans’ property tax exemptions can lower the amount you must pay in property taxes.
These tax exemptions aren’t a federal program, and they vary by state, so check with your local VA office to learn the exemptions you’re eligible for. Some states offer an exemption to all veterans, while other states limit this benefit to veterans who are currently receiving disability payments. Disabled veterans are 100% exempt from property taxes in some states.
Applying for a VA loan is a lot like applying for any other mortgage in many respects. Take these 6 steps into consideration when applying.
You’ll need this to be eligible for your VA loan. You’ll need to provide proof of your military service based on your status.
VA-approved brokers, like Advanced Funding, can help you get your VA certificate of eligibility quickly with proof of service.
Tell your mortgage broker you need your certificate of eligibility early in the process so they can help you get it.
When buying a home, get preapproved early on. The approval will give you a baseline for determining how much you can afford. In addition, when you make an offer on a house, you’ll find sellers tend to take offers more seriously if a letter of preapproval is attached.
Finding a house with a VA loan is like finding a house with any other loan option. Whatever property you buy must meet the VA’s Minimum Property Requirements, or MPRs. MPRs ensure the home is safe, structurally sound and sanitary. These requirements vary according to known risks in an area.
Once you find a home you like in your price range, put in an offer to buy the home. The seller may accept your offer, reject the offer or counteroffer. Once you and the seller agree on a price, a real estate agent or attorney can help draw up a sales contract.
Underwriters will assess your finances and make sure you qualify for a VA loan. The VA will also require an appraisal before they approve the loan. VA appraisals are stricter than conventional loans. During a VA appraisal, the appraiser will check that the home meets the VA’s MPRs and is sanitary, structurally sound and move-in ready with minimal repairs.
Once the VA appraiser says your new home is safe and sound, it’s time for you to sign on your new home, get your loan and receive the keys to your new property.
A VA loan is an important benefit earned by our military. If you qualify, you can get a great interest rate with no money down, even if you have past credit problems. If you feel like you’re ready, apply for a VA loan with Advanced Funding today!