What You Need to Know About VA Home Loans

Learn about the VA loan programs. Do you qualify for a VA loan?

What Are VA Home Loans?

VA loan graphicA VA home loan is a mortgage loan guaranteed by the United States Department of Veterans Affairs (VA). The program was created in 1944 to help to return World War II veterans purchase homes.

 The VA home loan program has been expanded to include service members, veterans, and their surviving spouses. VA home loans are available to buy or refinance a home, including manufactured and modular homes.

The Department of Veteran Affairs provides a wide range of loan alternatives, such as mortgages for the purchase and refinance of homes, loans for the rehabilitation and refurbishment of houses, and mortgages for energy efficiency. The following is a summary of the various VA loan options.

Who Qualifies for a VA Mortgage?

You must have completed at least six years of National Guard or Reserve service with at least 30 days of active duty to qualify for a house loan. Active duty service must have lasted 90 days in a row.

For veterans, current military personnel, and spouses, the Department of Veterans Affairs administers many loan programs.

Borrowers submit applications for VA loans to private lenders, such as banks, mortgage firms, and credit unions, authorized by the VA to handle the mortgage on behalf of the Department of Veteran Affairs.

If the service member passed away as a consequence of an injury sustained while on duty or a handicap related to their service, the surviving spouses may also be qualified for a VA mortgage.

What Are the VA Loan Requirements?

The VA loan requirements are that the veteran must be honorably discharged from the military, be a U.S. citizen or have permanent residency, and meet the service requirements. The veteran must also have a valid Certificate of Eligibility (COE). The VA issued the COE, which shows that the veteran meets all the eligibility requirements for a VA loan.

VA Loan Income Requirements?

Attractive suburban houseIncome must be verifiable, steady, and predictable and is expected to continue for the foreseeable future. Income forecasting could be a more precise science. It requires the lender to underwrite each loan individually, utilizing sound judgment and flexibility where necessary to be eligible for a VA loan.

The likelihood of ongoing employment must be calculated to establish if income is steady and predictable.
• the borrower's previous job history;
• the borrower's present position's training, education, credentials, and/or
• the sort of job.
The only income that can be verified can be used to establish an applicant's income.

In the borrower's present position, two years of work is a favorable sign of future employment. The Department of Veteran Affairs will accept less than 2 years with acceptable documentation.

With sufficient documentation, income from non-taxable sources like Social Security, child support, and alimony can be taken into account, along with income from a regular job.

What is the Debt to Income Ratio for a VA Loan?

Veteran and familyThe Department of Veterans Affairs sets the maximum debt-to-income ratio (DTI) requirements for VA loans. The debt-to-income ratio (DTI) limits must be met to be accepted for a VA loan depend on several criteria. These considerations include your income, credit score, down payment, and payment history, all of which are represented on your credit report. In addition to prior bankruptcies and foreclosures, other variables may affect the maximum allowable DTI. Working with an experienced mortgage professional who can help you find the best possible financing options based on your unique financial situation is essential.

Your debt-to-income ratio is calculated from an equation that includes your housing expenses and other recurring obligations like car payments, child support, and alimony.

The ratio of debt to income affects eligibility for VA loans. A VA loan's allowed percentage of debt to income is 43%. The debt-to-income ratio generally refers to the proportion of your monthly gross income that goes toward debt payments. It is the proportion of monthly debt commitments to monthly gross revenue.

VA Residual Income –

In addition to the standard debt-to-income calculation, the Department of Veteran Affairs employs a separate residual income analysis. This calculation includes additional money available for utilities and other housing expenses.

VA Home Loans Credit Score?

There is no minimum VA loan credit score required. The Department of Veterans Affairs (VA) does not impose a minimum credit score, so the requirement varies by lender. It can be adjusted based on your overall financial situation.

Your credit score is one of the most critical factors that a lender considers when you apply for a mortgage. A higher credit score will result in a lower interest rate, which could save you thousands of dollars over the life of your loan.

Suppose you're planning to use your VA home loan benefit. In that case, it's essential to understand how your credit score affects your eligibility.

Lenders typically require a minimum credit score of 620 for a VA home loan. However, the requirements may vary depending on the lender.
A low credit score could mean you won't be approved for a VA home loan or will be charged a higher interest rate. If your credit score is below 620, it may be worth improving your score before applying for a mortgage.


VA Home Loans Certificate of Eligibility?

House with a sold signA certificate of eligibility (COE) is a document that proves you're eligible for Department of Veterans Affairs (VA) home loan benefits. These benefits include special financing like VA Streamline Refinance, Cash-Out refinances, and no down payment purchase loans.

What is a VA Loan Funding Fee?

The VA charges a fee to participate in the VA loan program. The VA funding fee varies from 2.3 – 3.6% of your mortgage amount, depending on the type of service in which you served and other factors. The accumulation of funding fees enables the VA to reimburse lenders with defaulted VA loans. There are exceptions to the VA funding fee.

Funding Fee Exemptions

Veterans with a disability rating of more than 10 percent, recipients of the Purple Heart, and surviving spouses of veterans who died in the line of duty are excused from paying the VA funding fee.

If you're eligible, your lender will not collect the funding fee at closing; however, you must submit this request to your lender in writing before closing.

To be exempt from paying the funding fee: You must currently receive some form of disability benefits under laws administered by the Secretary of Veterans Affairs (VA). There's no minimum level of disability required.


VA Loan Limits for a Mortgage Loan

There's no VA loan limit for most loans. But when a VA loan does have limitations, they're usually based on conventional mortgage limits.

VA Loan Eligible Properties

Certain types of properties are VA-eligible. These include single-family homes, townhouses, duplexes, triplexes, and four-plexes. The property must be used as the veteran's primary residence. For multi-unit properties, at least one unit must be occupied by the veteran or his family.
In addition, the property cannot be in a flood zone. It must meet minimum property standards established by the VA.

What Properties Qualify for a VA Loan?

  • Condos approved by the VA
  • Co-ops – Not currently eligible for VA loans.
  • Investment Properties – Not eligible
  • Manufactured homes (mobile homes) that the VA requirements
  • Modular homes – Prefabricated homes
  • Multi-unit properties, up to 4 living units. The borrower must occupy
    one of the living units.
  • New Construction
  • Single-family homes

Can VA Loans Be Used for Manufactured Homes?

Yes, VA funding is available for prefabricated homes. The home must meet several requirements, such as being securely secured to a foundation.

The VA is all about helping veterans get the homes they've always wanted. When you apply for a VA home, they will look at your situation and see if a prefabricated house would work best for you.

Prefab houses are built to be movable and can be up to 40 feet wide or 320 square feet when complete on site. They're perfect for anyone who wants a mobile home that's big enough to fit their needs but doesn't have to be taken down whenever they want to move.

Can I Use VA Loan for an Investment Property?

You may use your VA home loan to purchase a duplex, triplex, or fourplex. However, the property cannot be used only for rental or investment; one unit must be your home.

Do VA Loans Cover Closing Costs?

Closing costs graphicVA loans can be an excellent option for veterans looking to buy a home. However, closing costs are not covered by the VA.
These costs include title insurance, attorney fees, and other associated expenses. But, the home seller is permitted to pay all the veteran's closing costs and possibly prepaid costs for the real estate escrow, homeowner's insurance, etc.

The conventional loan only allows some closing costs to be paid by the seller. 

Do VA Loans Have PMI?

The short answer is no. VA loans don't require private mortgage insurance (PMI). The VA does require a funding fee, which can be rolled into your loan amount. The funding fee helps maintain the VA program and covers losses incurred by lenders when borrowers default.

Do VA Loans Require a Down Payment?

Most veterans will not need to make a down payment. However, in some situations, a home buyer will need a down payment for a home purchase with a VA mortgage.

Can I Refinance a VA Loan?

Yes, you can use a VA loan to refinance a VA mortgage. In fact, you can get a lower interest rate or better terms than your current mortgage. You'll need to work with a lender that offers VA mortgages and apply for a new mortgage. If approved, you can use your new loan to pay off your old one.

Interest Rate Reduction Refinance Loan

In most cases, the purpose of these loans is to lower the mortgage rate paid by the borrower or to enable the borrower to convert an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.

The VA does not require appraisal or credit underwriting from its applicants. However, you should know that lenders may request an appraisal and a credit report regardless of your situation.
Read more about interest rate reduction refinance loans.

VA Cash-out Refinance

A cash-out refinancing loan from the Department of Veterans Affairs (VA) gives homeowners cash back in return for their home equity.

How to Apply for a VA Home Loan?

Woman appying for a VA loan on her computerThe Department of Veterans Affairs (VA) offers a home loan guaranty benefit to help eligible veterans finance the purchase of a home. One of the most generous government programs available is the VA home loan benefit, which enables veterans to buy houses with no down payment or mortgage insurance.

To be eligible for a VA home loan, veterans must meet specific service requirements and have a good credit score.

To apply for a VA loan, veterans must first determine their eligibility. Loan eligibility can be determined by checking the VA's website or speaking with a VA-approved lender. Once eligibility has been confirmed, veterans can start the application process by completing the Uniform Residential Loan Application (URLA). Speak to a lender below.

Rotating question markFAQs About VA Loans

Q. Are VA mortgage rates lower than conventional interest rates?
A. Yes, VA mortgage rates are lower than conventional interest rates. This is because the VA guarantees a portion of the loan, which allows lenders to offer lower interest rates.

Q. What is the VA funding fee?
A. The VA funding fee is a one-time fee charged by the Department of Veterans Affairs (VA) to help cover the costs of the VA Home Loan program. The borrower pays the fee, which can be rolled into the loan amount. The VA funding fee is not required if you are a disabled veteran or are eligible for a VA disability pension.

Q. Can a VA loan be used more than once?
A. Yes, you can use your VA loan more than once. In fact, you can use it as many times as you want as long as you qualify each time. However, each time you take out a new loan, you'll have to pay the funding fee again.

Q. What is the VA loan limit?
Technically, there are no restrictions on VA loans. There are maximum amounts that the VA will guarantee. The VA will guarantee up to 25 percent of the loan amount for lenders if you default. The amount the VA will guarantee depends on your VA benefit.

Conclusion

In conclusion, the VA home loan is an excellent option for eligible people. It can help you purchase a home with little to no money down, and the interest rates are typically lower than those offered by traditional lenders. If you are interested in learning more about the VA home loan or applying for one, contact a VA-approved lender.