How Does the VA Home Loan Work?
Learn about the VA loan programs. Do you qualify for a VA loan?
What
Are VA Home Loans?
A 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 returning 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 purchase or refinance a home, including manufactured homes and modular homes.
Who Qualifies for a VA Home Loan?
The Department of Veterans Affairs offers several loan programs
for veterans, active military members and spouses. Borrowers make
application for a VA loan through private lenders, including banks
and credit unions.
To qualify for a home loan, you must have served 90 consecutive days
of active duty during wartime or more than six years in the National
Guard or Reserves with at least 30 days of wartime service.
Spouses may also qualify if their spouse died from an injury
received in the line of duty or as the result of a disability that
is connected to their service. Read
more about spousal eligibility
What Are the VA Loan Requirements?
The
VA loan requirements are that the veteran must have been honorably
discharged from the military, must be a U.S. citizen or have
permanent residency, and must meet the service requirements. The
veteran must also have a valid Certificate of Eligibility (COE). The
COE is issued by the VA and shows that the veteran meets all the
eligibility requirements for a VA loan.
VA Loan Income Requirements?
When income can be verifiable, steady, and predictable, and is
expected to continue for the foreseeable future, it is deemed
effective. Income forecasting isn't a 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 in order to
establish if income is steady and predictable.
• the borrower's previous job history;
• the borrower's present position's training, education, and
credentials, and/or
• the sort of job.
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.
Read more about VA income
requirements
What is the Debt to Income Ratio for a VA Loan?
The
Department of Veterans Affairs sets the maximum debt-to-income ratio
(DTI) requirements for VA loans. The actual DTI limits you'll need
to be approved for a VA loan will depend on a number of factors
including your income, credit score, down payment and payment
history reporting on your credit report. In addition to prior
bankruptcies and foreclosures, other variables may affect the
maximum allowable DTI. It's important to work with an experienced
mortgage professional who can help you find the best possible
financing options based on your unique financial situation.
Your debt-to-income ratio is calculated from an equation that
includes your housing expenses as well as other recurring
obligations like car payments, child support and alimony.
The ratio of debt to income affects eligibility for VA loans. The
allowed percentage of debt to income for a VA loan is 43%. In
general, the debt-to-income ratio refers to the proportion of your
monthly gross income that goes toward debt payments. In reality, it
is the proportion of monthly debt commitments to monthly gross
revenue.
VA Residual Income – In addition to the
common debt to income calculation, the Department of Veteran Affairs
employs a separate calculation termed residual income. This
calculation includes additional money available for utilities and
other housing expenses.
Read more about VA debt to income
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 and can be adjusted based on your
overall financial situation.
Your credit score is one of the most important 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.
If you’re planning to use your VA home loan benefit, it’s important
to understand how your credit score affects your eligibility.
Lenders typically require a minimum credit score of 620 for a VA
home loan, although the requirements may vary depending on the
lender.
A low credit score could mean that you won’t be approved for a VA
home loan, or that you’ll be charged a higher interest rate. If your
credit score is below 620, it may be worth trying to improve your
score before applying for a mortgage.
VA Home Loans Certificate of Eligibility?
A 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 or Cash-Out refinances, and a no down payment
purchase loans.
Read more about the VA Certificate of
Eligibility.
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.
Read more about VA funding fees
Funding Fee Exemptions
Veterans with a disability rating 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.
Read more about the VA funding fee
VA Home Loan Limits
There's no VA loan limit for most loans. But when a VA loan does
have limits, they're usually based on
conventional mortgage limits.
Read more about VA loan limits
VA Loan Eligible Properties
There
are certain types of properties that 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, and 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 loans can be used for manufactured homes. The home must be permanently affixed to a foundation and meet certain other requirements in order to qualify. The Department of Veterans Affairs (VA) defines a manufactured home as "a structure, transportable in one or more sections, which, in the traveling mode, is 8 body feet or more in width or 40 body feet or more in length, or, when erected on site, is 320 or more square feet.
Can I Use VA Loan for 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 reasons, and one unit must be your personal home.
Do VA Loans Cover Closing Costs?
VA
loans can be a great option for veterans looking to buy a home.
However, closing costs are not covered by the VA.
These costs can include things like 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 does not allow all closing costs to be paid by
the seller. See
Seller concession
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 refinance a VA mortgage. In fact, you may be able to get a lower interest rate or better terms than your current mortgage. You'll need to work with a lender that offers VA mortgage and apply for a new mortgage. If you're approved, you can use your new loan to pay off your old loan.
How to Apply for a VA Home Loan?
The
Department of Veterans Affairs (VA) offers a home loan guaranty
benefit to help eligible veterans finance the purchase of a home.
The VA home loan benefit is one of the most generous offered by the
federal government, as it allows veterans to purchase homes with no
down payment and no mortgage insurance. In order to be eligible for
a VA home loan, veterans must meet certain service requirements and
must have a good credit score.
In order to apply for a VA loan, veterans first need to determine
their eligibility. Loan eligibility can be determined by checking
the VA's website or by 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.
Conclusion
In conclusion, the VA home loan is a great option for those who are eligible. 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, be sure to contact a VA-approved lender.