What Is a VA Home Loan?

A VA home loan is one that’s backed by the Department of Veteran’s Affairs. The VA itself doesn’t provide these loans. It only guarantees them, which means that the department pays the balance if the borrower goes into default. Various lenders offer VA home loans to qualified individuals looking to buy a home.

VA Home Loan Eligibility Requirements

To qualify for a VA home loan, you need to meet specific VA requirements as well as the requirements outlined by the lender. One of the very first requirements you must meet is to be an active-duty service member or have served in a branch of the United States military. The following are additional requirements set forth by the VA:

• If you’re active-duty, you must have served at least 90 consecutive days
• If you’re a veteran, you must have served for a minimum amount of time
• If you don’t meet the minimum service requirements as a veteran, you may still qualify if you were discharged due to reasons such as hardship or a service-connected disability
• You’re a surviving spouse who meets specific criteria

You’ll also need to obtain your Certificate of Eligibility. To get it, veterans need a copy of their DD214. Active-duty service members need to have a statement of service from a commander or personnel officer.

Lender Requirements

Different lenders have different requirements. While you might satisfy the VA qualifications, you also need to meet the minimums set by the bank, such as a minimum credit score, good credit history, and sufficient income. Compare different lenders to find one that will work with your situation.

Property Requirements

If you are a Veteran looking for a condo, not only do you need to qualify for VA home financing, but your property does, too. You’ll want to make sure the condo you’re looking to buy qualifies.

You must meet both VA requirements as well as lender requirements to qualify for a VA home loan.

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9 Things to Know About Using a VA Home Loan

If you meet the requirements for a VA home loan, keep the following points in mind when deciding whether or not to go for one.

1. You Don’t Need to Make a Down Payment

Most mortgages require a minimum down payment, although they vary based on their type. For instance, an FHA home loan requires 3.5% down, while a 30-year fixed requires 3%. A VA home loan, on the other hand, requires no money down. The VA backs 100% of your home. (Keep in mind, however, you will still need funds to cover closing costs.)

While you don’t need to pay any money down, you still can. Providing even a small percentage of the purchase price down helps to keep the total cost of your mortgage (and your monthly payments) down.

2. You Do Need to Pay a Funding Fee

You might not need to make a down payment, but you may need to pay a VA funding fee. The fee helps to offset the costs of the program for taxpayers. The exact amount you need to pay depends on several factors, such as if it’s your first time using the VA benefit, the loan type, and if you’re providing money down.

You have the option to pay the funding fee up front or roll it into the total cost of your mortgage.

Some borrowers are also exempt from the fee. Veterans who were injured while in service are exempt from paying the VA funding fee if they receive disability compensation or have a disability rating of 10% or higher. Surviving spouses of veterans who died in the line of duty also qualify for a funding fee exemption.

3. Rolling All Costs into Your Loan Could Lead to an Expensive Mortgage

While you can add your VA funding fee into your mortgage, it can make your loan more expensive than the value of your house. You may also end up with monthly payments higher than you can comfortably afford.

To avoid this issue, you can pay the VA funding fee up front. You can also reduce your mortgage (and monthly payments) by making a down payment, negotiating closing costs with the seller, or applying for a grant.

4. The VA Has No Minimum Credit Score Requirement (But Lenders Do)

The VA doesn’t have a minimum credit score requirement, which makes it an attractive option if you have less than ideal credit. That doesn’t mean you’ll automatically qualify, though. Lenders have their own sets of credit requirements that you’ll have to meet. (At the time of this writing, the minimum credit score requirement for VA loans here at Lower is 580.)

Different lenders have different minimums, so you should shop around to find a lender that will work with your situation.

5. There’s No Cap on How Much You Can Borrow

Certain mortgage loan products have caps on how much you’re able to borrow. The VA doesn’t have a cap, but it does have a limit on how much they’ll guarantee. Liability limits vary year to year and from one location to another. The property must also meet specific safety requirements.

6. Individual Lenders May Have Loan Limits

Due to the VA liability limits, a lender may set their own limits on how much they’re willing to lend you. You’ll either need to look for a home that’s under the maximum, find a different lender, or select a different type of mortgage.

7. You’ll Pay Fewer Closing Costs

The VA has limits on what lenders can charge for closing costs, which can result in fewer closing costs for you. Some of the ones you might expect to pay for include:

• The mortgage origination fee
• An appraisal fee
• A credit report fee
• The title insurance fee
• State and local taxes

In some cases, you may be able to negotiate with the seller and reduce your closing costs even further.

8. Private Mortgage Insurance Isn’t Required

If you put less than 20% down for a 30-year fixed mortgage, lenders require you to take out private mortgage insurance. FHA loans may require PMI as well. The VA doesn’t require PMI, even if you put no money down, which can potentially save you thousands of dollars.

9. Your VA Benefits Never Expire, And You Can Use Them More Than Once

There’s a common misconception that VA benefits eventually expire. Some believe that once you take out a VA home loan, you’ll never be able to do so again. These are both myths. Your VA benefits never expire, and you can use them more than once. In fact, you can have more than one VA home loan at a time, so long as you meet the occupancy requirements.

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A Quick Overview of the VA Home Loan Process

The VA home loan process isn’t all that different than the process of applying for any other type of mortgage. You will, however, need to meet the VA eligibility requirements and provide the appropriate documents. Here’s a quick overview of what the process looks like:

Get Preapproval

Getting preapproved before you start looking at homes serves a few purposes. For one, it gives you a better idea of how much home you can buy. It also lets sellers know that you’re serious when you make an offer.

Lenders take a close look at your financial information and credit history before they provide a preapproval letter. You’ll need to provide documents such as your DD214, identification, recent pay stubs, and bank statements. If you have a service-connected disability, you’ll need to provide your disability award letter.

If everything looks good, you’ll get a preapproval letter. Keep in mind that it’s not a guarantee of financing. The lender will, however, be willing to provide you with the funds if you fulfill certain conditions.  

Start Shopping

With your preapproval letter in hand, it’s time to start house hunting. Looking at listings online and viewing potential homes is generally the most fun part of the entire process (other than moving in and getting settled). Finding a real estate agent knowledgeable about VA home loans provides you with an invaluable asset, and can help make everything go more smoothly.

Make an Offer and Get Under Contract

Once you’ve found a home you love, your loan officer and real estate agent can help you make an offer. Your agent checks out comparable homes in the area, and your loan officer can provide you with information regarding closing costs. Once you make your offer, and the seller accepts it, the home goes under contract.

Go Through Underwriting

Once under contract, the underwriting process begins. All of your documentation goes to the loan processors and underwriters. Everything gets scrutinized at this point.

Expect your lender to contact you at least a few times to answer questions or provide additional documents. Respond and submit information promptly to avoid delays or hiccups in the underwriting process. If everything looks satisfactory, you’ll be clear to close. While not a guarantee for financing, it’s one step closer to you owning a home.

Close on Your New Home

No fewer than three days before you close, you’ll receive your closing disclosure. Compare its information with the information on your initial loan estimate and check for discrepancies. You should also take a final walkthrough of the property to make sure everything’s in order.

On the day of your closing, you’ll sign all of the necessary documents. You’ll also finally get the keys to your new home.

The VA home loan process isn’t all that different from the process of applying for any other type of mortgage.

A VA home loan provides active-duty service members and qualifying veterans with a way to purchase a home. The mortgage option allows for no money down, fewer closing costs, and no limits on how much you can borrow. If you meet the VA eligibility requirements and are looking at buying a home soon, a VA home loan may just be the right option for you.

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