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?

Attractive suburban house 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?

Veteran and family 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

House with a sold sign 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?

Closing costs graphic 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?

Woman appying for a VA loan on her computer 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.