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VA Home Loans: What You Need To Know
VA home loans remain a consistent resource to help service members and veterans to purchase homes for themselves and their families every year. The Department of Veterans Affairs (VA) determines who qualifies for a VA loan, and allows certain mortgage lenders to complete the loan process. Due to the VA’s guarantee, lenders are encouraged to offer lower rates and other benefits to qualified applicants, including zero down payment options. These loans come in several different forms, including purchase and refinance loans. Applicants may even use these benefits to build a brand new home in some cases.
Qualifying for a VA mortgage necessitates you to meet specific requirements regarding your length of service and finances. Documents verifying these factors are necessary to complete the process. You must also keep loan limits in mind in order to get the most out of your VA loan. Learning about this program in advance and choosing a knowledgeable lender will ensure that your VA home buying experience runs smoothly.
Understanding VA Loans
A VA-guaranteed home loan is a mortgage that is backed by the government. The VA offers this home buying program in order to support service members during and after their duty.
To ensure that you get the most out of this program, it is important to understand how to use VA home loan benefits. VA benefits can be used to build or purchase homes, or to refinance existing mortgage loans. If you are wondering “What are the benefits of a VA loan?” there are many answers. Some of the biggest perks in applying for these benefits include the following:
- Lower interest rates. The guarantee from the VA allows lenders to offer interest rates that are often much lower than the rates of conventional mortgage loans.
- No down payment requirement. As long as you adhere to local loan limits established by the VA, you are not required to make a minimum down payment to secure your loan.
- No private mortgage insurance requirement. Most lenders require you to purchase mortgage insurance for your loan, but VA loans allow you to waive this requirement.
Different Types of VA Home Loans
The VA guarantees various different types of loans, with varying term lengths and interest rate plans.
Applicants can obtain a loan to purchase a home, or choose one of the VA loan refinance options through this program. Some home loans are also available to certain qualifying groups. Make sure to explore all the different ways to use you VA benefits through loan options such as:
- Interest Rate Reduction Refinance Loans. Take advantage of decreasing interest rates of the IRRRL loan. This option is only available for current VA loans, but can be used for either fixed-rate or adjustable rate mortgages (ARMs).
- Purchase loans. You can buy a home for your family with VA purchase loans. They are offered in the common 30-year fixed-rate format, as well as in shorter terms with adjustable interest rates. Which option is best for you depends on factors like current interest rates and how long you plan to live in the home.
- Cash-Out Refinance Loans. Turn some of your home’s equity into cash for your other expenses with this type of refinance loan. Unlike IRRRLs, you do not have to have a VA loan to utilize this option. In fact, you can use the Cash-Out option to convert your current loan into a VA loan.
- Native American Veteran Direct Loans. An NADL is a loan available to Native Americans who served, as well as their spouses. Build or purchase a home on Federal Trust land, if an agreement is made between the VA and the tribal government, with this type of loan.
VA Home Loan Lenders: What You Need To Know
The interest rate you'll receive on a VA loan depends on where you apply. The VA designates private mortgage lenders to issue these loans to applicants. In order to lend VA loans, each lender is required to adhere to certain standards of service. It is important to consider aspects like level of experience when choosing a lender. Of course some mortgage brokers dedicate more time to VA lending than others, which means they can offer more expertise and guidance.
VA approved lenders are able to set their own interest rates for applicants as long as they follow the proper guidelines. However, rates are typically much lower than those of traditional mortgages since these are backed by the VA. Lender fees are also often included to cover aspects like origination and the closing process. In addition, each lender outlines their own standards for eligibility. Which means that financial requirements such as income and credit score limits can vary as well.
Understand VA Home Loan Requirements
The VA sets specific financial and service requirements in order to determine who qualifies for a VA loan. In general, all service members can become eligible to apply for these benefits. This includes active duty service members and veterans, as well as members of the National Guard and the Reserve. Surviving spouses are also eligible for these loan options.
Minimum service requirements: Applicants must fulfill a certain length of service. During times of peace, service members must complete at least 181 days of continuous service. During war time, this requirement is reduced to 90 days. Members of the Reserve or National Guard must agree to at least six years of enlistment. Veteran applicants must also present proof of honorable discharge.
Credit score: Applicants are required to have a certain credit score for VA loan benefits. While the VA does set a minimum credit score, most lenders require a score of at least 620 to approve a loan application.
Residual income: According to VA loan income requirements, applicants must have a certain amount of residual income. Residual income is funds leftover after all other monthly payments are made. Establishing a minimum residual income level allows the VA to ensure that applicants will be able to afford their mortgage payments and still support their families. The amount required depends on the location and the size of the loan.
Applying for a VA home loan
There are multiple documents required to apply for this type of loan. A critical step in the process is obtaining a Certificate of Eligibility, which verifies your service. In some cases, your chosen lender is able to obtain your COE on your behalf. Otherwise, you can apply online through the benefits portal or by mailing your application. Depending on the nature of your service, you may need one or more of the following documents to complete this process:
- Your discharge papers (DD214)
- Statement of service signed by a commanding officer
- Separation and Record of Service form
- Retirement Points Statement
- Proof of honorable service
In addition to the COE you will also need other documents to submit your VA loan application. This includes proof of income and proof of employment. While employment is not required to obtain a VA loan, it provides reassurance of your ability to make your mortgage payments.
The steps involved to apply for a VA home loan are similar to applying for a conventional loan. Once you have the necessary documents and meet the VA’s qualifications, you can begin the process. Typically, the steps to get your VA loan are as follows:
- Receive quotes from multiple lenders. You are encouraged to pre-qualify for a mortgage. This can help you set a budget while you search for a property.
- Obtain your Certificate of Eligibility.
- Find a home that fits your needs and budget.
- Submit your application and supporting documents.
- Sign the contract.
- Pass the appraisal. A VA appraisal is required for every home in order to receive a guaranteed loan. During this time, an appraiser will assess the value of the home and make sure it meets the minimum property requirements outlined by the VA.
- Pay the VA funding fee and other closing costs. All applicants pay this fee in order to help offset the cost of the program for taxpayers. You also have the option to finance the VA funding fee into your loan.
Understanding VA Loan Limits
The VA does not set limits on the amount you can borrow when you apply for a VA loan. However, it does put a cap on the amount that it will guarantee. These loan limits are based on the local cost of living in the county where you apply, and they can change every year. The current cap is generally around $453,100.
If you apply for a loan above this amount, you usually begin to lose some of the benefits of this loan program. For example, you will likely be required to make a down payment for the portion of the loan that is not covered by the VA. You will most likely be charged a higher interest rate as well. Make sure to research the exact VA loan max for your area and don't exceed it to ensure that you get the most out of your VA loan.