The VA home loan: The best home loans for veterans

The VA home loan can help Servicemembers, Veterans, and eligible surviving spouses become homeowners. The U.S Department of Veterans Affairs provides home loans by guaranteeing loans and other housing-related services to assist veterans or their eligible surviving spouses in purchasing, constructing, repairing, maintaining, or modifying a home for their personal use.

Private lenders, such as banks and mortgage firms, offer VA home loans while the U.S Department of Veterans Affairs guarantees a portion of the loan, allowing the lender to provide you with better terms.

Top 10 VA loan benefits

No Down Payment

This is by far the most important advantage of the program. Borrowers who qualify for a VA Loan can buy up to the conforming loan limit in their county without putting down any money. These thresholds are subject to annual modification and are higher in more costly regions.

To purchase a house, most home loan services need at least a small down payment. The VA home loan is one of the few exceptions. Rather than paying 5 to 20%, or more of the home’s purchase price in cash upfront, you can fund up to 100% of the purchase price with a VA loan.

>>More: VA Cash-Out Refinance: How It Works

No mortgage insurance

If you make a down payment of less than 20%, most lenders would require you to pay mortgage insurance. If you defaulted on your loan, this policy, known as private mortgage insurance (PMI) for traditional loans and mortgage insurance premium (MIP) for FHA loans, will cover the lender.

There is no down payment or mortgage insurance required with a VA loan. As a result, a VA-backed mortgage is both inexpensive upfront and over time.

VA loans have a government guarantee.

There’s an explanation why the VA loan has such advantageous terms.These loans are ‘guaranteed’ by the federal government, which means that if you are unable to meet monthly payments for whatever reason, a portion of the loan balance will be returned to the lender. This guarantee encourages and allows private lenders to provide very competitive terms on VA loans.

You have the choice of shopping around for the best VA loan rates.

The Veterans Administration neither originates nor funds VA loans. They aren’t government loans in the traditional sense. Furthermore, the VA does not fix mortgage rates for VA loans.

Instead, banks, savings and loan companies, credit unions, and mortgage lenders in the United States sell VA loans, with each setting its own rates and fees. This means you can browse around and compare loan deals while still selecting the VA loan that best suits your financial needs.

Prepayment penalties are not allowed on VA loans.

A VA loan does not limit your ability to sell the property before the end of the loan period. There are no prepayment penalties or early-exit fees if you sell your home within a certain time period. Additionally, there are no limitations on refinancing your VA loan.

You can refinance your current VA loan into another VA loan or move to a non-VA loan at any time through the VA’s Interest Rate Reduction Refinance Loan (IRRRL) program.

 VA loans come in a variety of shapes and sizes.

A VA loan may have a fixed or flexible interest rate. A VA loan may also be used to purchase a home, apartment, new-build home, manufactured home, duplex, or other forms of property. It can also be used to refinance your current mortgage, make home renovations or upgrades, or make your home more energy-efficient.

VA loans are easier to obtain.

VA loans, like all mortgages, require specific paperwork, a good credit history, and enough revenue to cover your monthly payments. However, as opposed to other loan schemes, VA loan guidelines are more lenient. Because of the VA loan guarantee, this is likely.

VA loan closing costs are lower.

The VA sets a cap on how much the closing costs that lenders may charge VA loan applicants should be. A VA loan can also be more economical than other forms of loans in this way. Closing costs are money that can be put into furniture, transportation costs, home improvements, or something else.

The VA offers funding fee flexibility.

A “funding fee” is an upfront expense determined by the amount of the loan, your type of qualifying service, the size of your down payment, and other factors. However, funding costs do not have to be paid in cash. The VA requires the fee to be financed as part of the loan, so there is no cash outlay at closing. And not all VA borrowers will be able to afford it. Veterans who earn VA disability benefits are usually exempt from paying VA funding fees.

VA loan rates

Amongst the different types of home loans out there, the VA loan rates are the lowest. VA loans are believed to be low-risk mortgages because the U.S Department of Veterans Affairs backs them. The VA home loan requires a higher down payment and credit score than most other loan programs. Due to more lenient lending rules and higher perceived risk, a VA loan should have a higher rate on the open market. However, the VA’s attempts to keep veterans in their homes have a lower risk for banks and lower borrowing rates for qualifying veterans.

VA loan eligibility

Contrary to popular opinions, VA home loans are not the exclusive reserve of veterans only. VA loans are also available to other classes of military members. So if you are a member of the National Guard and you’re wondering ‘Am I eligible for a VA home loan?” Yes, you are. The VA loans are also available to:

  • Active-duty service members
  • Members of the National Guard
  • Midshipmen at the U.S. Naval Academy
  • Officers at the National Oceanic & Atmospheric Administration.
  • Reservists
  • Surviving spouses of veterans
  • Cadets at the U.S. Military, Air Force, or Coast Guard Academy
  • Minimum service required for a VA mortgage
  • Active-duty military members, veterans (unless dishonorably discharged), and, in some cases, surviving family members are eligible for VA home loans.

Criteria for Eligibility

You must meet one of the following service criteria to be eligible:

  • If You’ve served 181 days of active duty during peacetime.
  • If You’ve served 90 days of active duty during wartime.
  • If You’ve served six years in the Reserves or National Guard.
  • If Your spouse was killed in the line of duty, and you have not remarried.

The VA loan Certificate of Eligibility(COE)

What is a COE?

A Certificate of Eligibility (COE) is required to obtain a VA loan. A COE can be obtained via the VA eBenefits website, by mail, or by having your lender obtain one for you.

How to get your Certificate of Eligibility (COE)

You’ll need proof that you’ve completed the minimum service criteria. Consider the following scenario:

  • A DD Form 214 detailing your character of service and justification for separation is required for veterans.
  • A current statement of service signed by a unit commander, personnel officer, or other authority is required for active-duty service members.
  • The VA eBenefits website lists the specific documents required by each type of borrower.

Does a Certificate of Eligibility mean you are guaranteed a VA loan?

No, a Certificate of Eligibility (COE) does not guarantee that a VA loan would be approved. While your COE shows the lender that you’re eligible for a VA loan, no one is “guaranteed” approval. You must also meet VA mortgage requirements to be eligible for the loan. The term “guarantee” refers to the VA’s assurance that the loan will be repaid if the borrower defaults.

Qualifying for a VA mortgage

VA loan eligibility vs. qualification

Just because you’re “eligible” for VA home loan benefits because of your military rank or affiliation doesn’t mean you are qualified for one. You must also meet the credit, debit, and income requirements for a VA loan.

Minimum credit score for a VA loan

The VA has not determined a minimum credit score for a VA mortgage. HOWEVER, many VA mortgage lenders need minimum FICO scores of 620 or higher, so apply to a variety of lenders if your credit score is a concern. Subprime credit is not accepted by even VA lenders who accept lower credit scores. According to VA underwriting guidelines, applicants must have paid their obligations on time for at least the previous 12 months to be deemed a satisfactory credit risk.

VA loan debt-to-income ratios

Your debt-to-income ratio, or DTI, is the proportion of your debts to your income. To come up with this number, VA underwriters divide your monthly debts (car payments, credit cards, and other accounts, plus your proposed housing expense) by your gross (before-tax) revenue.

VA residual income rules

Additional calculations are carried out by VA underwriters and can affect your mortgage acceptance. The VA calculates the “true” costs of living by considering your average monthly utilities, estimated income taxes, and the part of the country where you live.

The residual income (i.e., the money “leftover” per month) is calculated by subtracting the figure from your income.

Consider the residual income figure to be a realistic model of your living expenses.

The VA will make every effort to make your homeownership experience as stress-free as possible.

Qualifying for a VA loan with part-time income

And if you work part-time or several jobs, you can be eligible for this form of a mortgage if:

You must have a two-year track record of earning a consistent part-time salary and a consistent number of hours worked. The lender would make certain that any income earned appears to be consistent.

VA funding fees and loan limits

The VA charges a one-time fee to cover the expenses of the program and ensure its long-term viability. Veterans pay a lump sum that varies depending on the intent of the loan and the value of the down payment. The fee is usually included in the loan and does not increase the amount of money required to close the loan.

VA loan limits in 2021

VA loan limits have been repealed, thanks to the Blue Water Navy Vietnam Veterans Act of 2019. There is no maximum amount for which a home buyer can receive a VA loan, at least as far as the VA is concerned. However, private lenders may set their own limits. So check with your lender if you are looking for a VA loan above local conforming loan limits.

Eligible property types

Any home you buy with a VA-backed loan must be your primary residence, according to the VA. This means you won’t be able to use the loan to purchase a holiday home or a rental property. However, the term “home” does not only refer to single-family residences. Condo homes, multi-unit houses (up to four units), and manufactured housing are all examples of multi-unit housing.

Before closing, the house will be appraised and inspected by a VA-approved contractor. According to Jones, VA appraisals are strict and similar to FHA appraisals. These are used to assess the structure’s protection and stability. When it comes to property type, you can buy with a VA loan, and you have a lot of options. A VA loan can be used to purchase the following types of homes:

  • Detached house
  • Condo
  • New-built home
  • Manufactured home
  • Duplex, triplex, or four-unit property

Veteran mortgage relief with the VA loan

The Department of Veterans Affairs (VA) in the United States helps veterans stay in their homes. When a veteran is having trouble with mortgage payments, the VA steps in. The VA collaborates with loan servicers to provide veterans with alternatives to foreclosure.

The VA made over 400,000 contact efforts to reach out to borrowers and loan servicers in the fiscal year 2019. The goal was to come up with a repayment plan that was acceptable to all parties. Thanks to this campaign, over 100,000 veteran homeowners escaped foreclosure in 2019.The program is estimated to have saved the taxpayer $2.6 billion. More significantly, a large number of veterans were given another opportunity to own a home.

When NOT to use a VA loan

  • If you have good credit and 20% down
  • Mortgage insurance is not required, and this is a major benefit of VA home loans. The VA funding, on the other hand, is not free. Borrowers must pay an initial funding fee, which is normally added to the loan sum.
  • Depending on the down payment percentage and if the home buyer has ever used his or her VA mortgage eligibility, the fee varies from 1.4 to 3.6 percent. 2.3 percent is the most common fee. A 2.3 percent charge equals $4,600 on a $200,000 purchase.
  • Buyers who prefer a conventional mortgage with a 20% down payment, on the other hand, escape mortgage insurance and the upfront fee. The VA funding fee could be a high cost for these military home buyers.

Exceptions

When you are qualified for a VA loan, you don’t meet conventional loan requirements.

When your name is on the “CAIVRS” list, the CAIVRS, or Credit Alert Verification Reporting System, is a database of customers who have defaulted on government obligations. The VA home loan program does not apply to these people.

If you have a non-veteran co-borrower

Veterans also apply for home loans with non-veterans that are not their spouses. That’s fine. However, it might not be the best option for them. Your salary as a veteran would cover half of the loan payment. The non-earnings veteran cannot be used to make up for the veteran’s lack of earnings. Furthermore, when a non-veteran holds half of the loan, the VA just guarantees half of it. For the non-guaranteed part, the lender may demand a 12.5 percent down payment.

If you apply with a credit-challenged spouse

If you’re applying with a partner who has bad credit,

In states where community property laws apply, VA lenders must take the spouse’s credit score and financial commitments into account. This law applies even though he or she is not listed on the property’s title or the mortgage. The following are examples of such states:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington, D.C.
  • Wisconsin

If you’re looking to purchase a second home or an investment property.

Veterans and active-duty service members may use VA financing to purchase and live in their own homes. This loan isn’t intended to help you develop a real estate portfolio. These loans are only for primary residences; if you want to buy a ski cabin or a vacation rental, you’ll need a conventional loan.

If you’re looking to buy a high-end house

Beginning in January 2020, a lender’s ability to accept a mortgage would be unrestricted. However, lenders can set their own VA loan limits, so check with them before applying for a large VA loan.

Spouses and the VA mortgage program

Surviving spouses of veterans and military members can apply for VA home loan programs to help ease the burden of getting life back on track when they lose a spouse. The Department of Veterans Affairs guarantees purchase, cash-out refinance, and interest rate reduction refinances loans (IRRRL) that can make purchasing or refinancing a home more affordable.

Are surviving spouses eligible for VA loans?

Surviving spouses of veterans and military personnel can be eligible for a VA loan. To be eligible, at least one of these conditions should be true:

  • The veteran is missing in action
  • The veteran is a prisoner of war (POW)
  • The veteran died from a service-connected disability, and the spouse didn’t remarry.
  • The veteran died in the line of duty.
  • The veteran died while serving in the military or from a service-connected injury, and his or her spouse did not remarry until reaching the age of 57 or before December 16, 2003.

A Certificate of Eligibility is required for the surviving spouse to purchase or refinance a home (COE). More information about how to obtain a COE can be found on the Department of Veterans Affairs website.

VA loan benefits for surviving spouses

Additional benefits may be available to these spouses. They are not required to pay the VA funding charge. Their loan balance and the monthly payment will be reduced as a result. Surviving spouses who meet the following criteria are also qualifying for VA streamline refinance.

At the time of the veteran’s death, the remaining spouse was married to him. The initial VA loan was taken out by the surviving partner. When the deceased veteran was the only borrower on the original VA loan, even though he or she married after purchasing the house, VA streamline refinancing is usually not an option.

The surviving spouse will need to apply for a non-VA refinance or a VA cash-out loan in this situation. If this is the case, the surviving spouse can tap into the home’s equity to raise cash for any purpose or even pay off an FHA or conventional loan to eliminate mortgage insurance.

Qualifying if you receive (or pay) child support/alimony

Purchasing a home following a divorce is a difficult process. If you were a two-income family prior to your divorce, you now have less purchasing power and a lower monthly income for the purposes of your VA home loan application.

It may be more difficult to meet the VA Home Loan Guaranty’s debt-to-income (DTI) guidelines, as well as the VA residual income criteria for your region if you have less income. A loss of income may be compensated by receiving alimony or child support.

Mortgage lenders would not require you to disclose the terms of your divorce agreement’s alimony or child support payments, but if you do, it will help you qualify for a home loan. Alimony and child support income would be treated differently by various VA-approved lenders.

To cover alimony and child support payments, you will typically be asked to include a copy of your divorce settlement or other court documents. Lenders want to know that the payments are timely, consistent, and likely to continue for at least another 36 months.

Lenders would want to see that the payments are consistent, dependable, and likely to continue for at least another 36 months.

You will also be required to provide evidence that alimony and child support payments have been made in the past reliably so that the lender may use the income as part of the VA loan application. If you pay alimony or child support, your debt-to-income ratio will suffer.

You’re not only losing out on your dual-class families’ second income, but you’re also making additional payments that are deducted from your outflows. When it comes to such fees, VA mortgage lenders do their homework. You can still get a VA loan if you make these payments; it’s just more difficult to demonstrate adequate monthly income.

VA loan assumption

How to assume (take over) someone else’s VA loan

You take on the existing homeowner’s monthly payment as you assume a mortgage loan.

How to assume a VA loan

There are currently two ways to assume a VA loan. The new buyer is a qualified veteran who “substitutes” his or her VA eligibility for the eligibility of the seller. The new home buyer qualifies through VA standards for the mortgage payment. This is the safest method for the seller as it allows the loan to be assumed knowledge that the new buyer is responsible for the loan, and the seller is no longer responsible for the loan.

The lender and/or the VA need to approve a loan assumption. Assumptions may be processed without going through a VA Regional Loan Center if a lender with automatic authority services the loan. The loan must be submitted to the relevant VA Regional Loan Center for approval if the lender does not have automatic authority. This procedure usually takes a few weeks. The servicer has to ensure that the homeowner assumes the property meets both VA and lender  standards when VA loans are assumed.

VA loan assumption requirements

For a VA mortgage assumption to take place, the following conditions must be met:

  • The existing loan must be in good standing. Any past due sums must be charged at or before closing if this is not the case.
  • The buyer must meet VA credit and income requirements.
  • All mortgage obligations, including repayment to the VA if the loan defaults, must be assumed by the buyer.
  • A financing charge of 0.5% of the current principal loan balance must be paid by the original owner or new owner.
  • A processing charge, as well as a fair estimate of the cost of the credit report, must be charged in advance.

Finding assumable VA loans

Home buyers may find an assumable VA loan in a variety of ways.Print media, believe it or not, is still alive and well. Some home sellers place an ad in the newspaper or in a local real estate publication advertising their assumable home for sale.

There are some websites where you can look for assumable mortgage loans. TakeList.com and Zumption.com are two websites that allow homeowners to advertise their properties to home buyers looking to assume a loan.

Real estate agents continue to be a valuable resource for home buyers thanks to the Multiple Listing Service (MLS). This is also true for home buyers looking for VA loans that can be assumed.

How do I apply for a VA loan?

You can easily and quickly get your certificate of eligibility (COE) pulled by a lender to ensure you’re eligible for a VA loan. VA home loans are available from the majority of mortgage lenders. As a result, you’re free to shop around and compare prices with any business that catches your eye.Furthermore, VA-specific mortgage lenders are among the best-rated (and most affordable) on the market.

Call Now Button