VA Loans
What is a VA Loan?
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.
Why a VA Loan?
No Down Payment
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 3, 5, 10, 20% (sometimes more), of the purchase price of the home in cash up front, 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.
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 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.
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 lenders to provide these VA loans with extremely attractive terms.
VA Mortgages Are Available in Many Types
VA loans can have either adjustable (ARM) 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.
It is Much Easier to Qualify for a VA Loan
Like 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.
There is Funding Fee Flexibility Offered by the VA
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.
VA Loans are Assumable
Most 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.
VA Loan Rates
The mortgage rates on VA loans tend to be lower than other types of mortgages.
How Do I Know if I Am Eligible for a VA Loan?
VA loans are not only available to veterans. Other military members are also eligible for these loans.
Eligible VA borrowers are: Reservists, 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 required.
What is the Minimum Service Term Required for VA Loans?
VA loans are typically made available to veterans, active-duty service members (unless dishonorably discharged), and in certain cases, surviving spouses or family members. 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” – Certificate of Eligibility
What is a COE?
To prove to us that you are VA-eligible, you will need to supply a COE (Certificate of Eligibility). We can usually acquire a COE on your behalf online, quickly. In most cases, getting your Certificate of Eligibility is a simple task. We can order your COE through the VA’s automated system. All 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 us.
FHA loans also allow up to 50% debt-to-income ratios, so if you have fairly high levels of current debt, then it is much more likely that you will qualify for an FHA loan than another type of home loan.
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.
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.
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 lenders that offer VA loans require a minimum FICO score of 620 or higher. We may be able to approve a lower score depending on the scenario. 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 (DTI) 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 cards, car payments, any other accounts, and your “proposed” housing expense) by your before-tax (gross) income to arrive at this figure. A DTI of up to 50% can be approved as long as residual income guidelines are met.
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.
How to Qualify for a VA Loan with Part-Time Income
It is possible to qualify for a VA loan 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. We will also need to demonstrate 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
| Service Type | Down Payment | First Time Use Fee | Subsequent Use Fee |
|---|---|---|---|
|
Active-Duty, National Guard, and Reserves |
None |
2.3% |
3.6% |
|
|
5% or More |
1.65% |
1.65% |
|
|
10% or More |
1.4% |
1.4% |
VA Loan Limits
There are no maximum amounts that home buyers can apply for when it comes to a VA loan. However, lenders often have their own limits. We will help you figure this out based upon your loan scenario.
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: condo, manufactured home, single family detached home, new construction home, four-unit, triplex, or duplex property.
Can You Purchase a Multi-Unit Home with a VA Loan?
VA home loans permit borrowers to purchase a four-plex, triplex, or duplex property with 100% financing, provided the borrower lives in one of the units as a primary residence. Approval for the purchase of one of these property types does require more rigorous underwriting. We will walk you through the process, how it works, and underwriting requirements.
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 a year, then this property, regardless of whether it is a retirement property or vacation home, is considered as your “official primary residence”.
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 home, you are required to live in one of these units. Only then you will you be permitted to rent the rest of the units out.
The only exception to this 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 requires that condo projects are approved by them. We can help you look-up condo projects to see if they are approved.
When Should You Not Use a VA Loan?
If you have a down payment of 20% or more and your credit score FICO is high.
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 an upfront funding fee, 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 down payment and if the borrower has used his/her VA mortgage eligibility before. The typical fee is usually around 2.3%. The buyers that can put 20% down and choose one of the conventional mortgages can avoid upfront fees and mortgage insurance saving a lot of money.
If You are on the CAIVRS (Credit Alert Verification Reporting System 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 system, is a type of database that contains the names of consumers that have failed to keep up with their government obligations and have 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 spouse. This is usually acceptable but is not always an ideal choice. If you are the “veteran”, your income needs to cover 50% of the loan payment. The income of the “non-veteran” 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.
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:
- California
- Arizona
- Texas
- Idaho
- New Mexico
- Louisiana
- Nevada
- Wisconsin
- Washington
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.
Ready to Apply for a VA Loan?
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