How VA Loans Work
The VA home loan program was designed to help Veterans purchase a home with some of the best loan terms and interest rates available. Because of this, VA-backed loans usually have significantly lower rates than conventional mortgages.
The Department of Veterans Affairs isn't a lender. Instead, it acts as a guarantor of your loan, meaning the government effectively acts as a co-signer to your mortgage. This allows you to get the best deal possible. (However, if you default, you will still be responsible for paying the VA what they paid to cover your financial responsibilities.)
The smaller your total loan, the higher the percentage the VA will guarantee. If your loan is no more than $45,000, the VA will guarantee up to 50% of a home loan. But if your mortgage is greater than $144,000, the VA will guarantee 25% of the loan, up to $104,250.
While you can certainly get a much greater loan, you won’t need to make a down payment if you stick to these limits.
One thing to keep in mind is that VA loans aren’t gifts—you do have to repay them. They also aren't a guarantee that the property you purchase is free of defects or is a good investment. You must do your own research to ensure you're making the best decision for you and your family.
VA-backed loans usually have significantly lower rates than conventional mortgages.
Benefits of a VA-Backed Loan
VA loans are a way to ensure that all Veterans have an opportunity to buy a home. These loans make it easier for Veterans to get good rates and terms that are competitive with conventional mortgages.
If you qualify for a VA-backed loan, you will likely qualify for a fixed-rate loan with favorable terms like no down payment. You also won’t have to pay the mortgage insurance costs that you might have with conventional mortgages.
VA loans limit closing costs and provide you the right to prepay without penalties, possibly further reducing your interest rates.
Plus, because you’re taking out a government-backed loan, you may be able to get help if you’re having difficulty paying your mortgage due to hardship. For example, the CARES Act allows Veterans to postpone payments due to issues related to the COVID-19 pandemic.
These loans make it easier for Veterans to receive loans with good rates and terms that are competitive with conventional mortgages.
Eligibility Requirements for a VA Mortgage
If you’re considering a VA loan, the specifics for eligibility are based on when and how you served as well as how you were discharged. For example, you are eligible if you served:
During wartime, including World War II, the Korean conflict, the Vietnam era, and the Gulf War
During certain times of peace, such as May 8, 1975, to September 7, 1980, if you were enlisted or to October 16, 1981, if you're an officer
For at least 90 days of continuous active duty if you are currently serving.
For at least six years in the Reserves or National Guard, with stipulations.
Through your spouse, if you are an unmarried survivor of a service personnel who died or is missing in action.
As with all military benefits, eligibility also has other requirements. For example, you must have been discharged with an honorable discharge, placed on the retired list, or discharged because of a service-connected disability.
How Do You Get a VA Loan?
Ready to get your VA loan? Even before you've found the property you'd like to buy, you'll want to find a lender, like us here at Lower.com, that’s approved by the U.S. Department of Veterans Affairs.
Next, you'll need to obtain what is known as a Certificate of Eligibility, or a COE. This proves to a lender that you qualify for VA benefits. You’ll need either a copy of your DD214 or a statement of service (if you’re active duty). You can apply directly from the VA website for the certificate.
Once you have your paperwork in order, you can work on getting pre-approved for the loan. You'll need to share your income, credit history, employment status, and other personal and financial details. Getting pre-approved allows you to know how much you can borrow. (This is super important when it comes to shopping for a home.)
Once you’re ready to start looking for a home, a real estate agent can help you enter a purchase agreement, which is needed to order a VA-approved appraisal. The VA gives appraisers 10 days to complete their work.
Once the appraisal is finished, you'll be on your way to finalizing your purchase and moving into your new home.
You'll need to obtain what is known as a Certificate of Eligibility, or a COE.
Tips for Getting the Best VA Loan
You don't need perfect credit to qualify for a VA-backed mortgage, but there are a few things you can do to help get the best rate and terms, as you would with any mortgage.
Check Your Credit Report
Your credit report is your key to the best deal, so you’ll want to make sure there aren’t any errors. You can work with your Lower loan advisor to check your report, see what’s in your credit history and check your current score. Then, you’ll see if there are any issues you can resolve to improve your financial profile (and get a lower rate).
Know What You Can and Can't Do
VA-backed home loans are for your primary residence, whether you're purchasing or refinancing it. That means you can use this benefit for a single-family home, a condominium, building a new home, or purchasing a multi-unit dwelling if you live in one of the units.
However, you may run into challenges if you aren't planning on living in the home within 60 days of closing. This can be difficult for military personnel who may be deployed elsewhere. If your spouse is able to live in the property on your behalf, you'll still qualify.
Calculate Your Debt-to-Income Ratio
While the VA benefit makes it easier to get approved, you'll still need to show a reliable income stream. Make sure you can show proof of at least two years of steady income.
If you’re carrying a large amount of debt compared to your income, you may need to pay down some of that debt. The VA usually prefers a debt-to-income ratio of 41% or less. To see where you stand, just get in touch with a Lower loan advisor.
Know You Can Sell to Another Vet
Another benefit of getting a VA-guaranteed mortgage is that they are assumable. That means you can transfer your VA loan to another Veteran if they qualify.
This can make your property that much greater of an investment, as your future buyer will also be able to benefit from your interest rate. Since rates tend to rise over time, you'll probably be able to sell more quickly and with less paperwork when the time comes since the buyer will be able to keep your same low rate.
VA Loans Are a Benefit of Your Service
For those who qualify, a mortgage that is guaranteed by the U.S. Department of Veterans Affairs provides an exciting opportunity to buy or refinance a home. By working with a VA-approved lender and appraiser (like us here at Lower.com) you will be able to take full advantage of the benefits you've earned through your service with the U.S. Armed Forces.
The first step in the process is to apply for a Certificate of Eligibility and get a preapproval. This can give you an idea of your entitlement and help you determine your budget for purchasing or refinancing your home at a better rate.
Once the initial work is done, it’s important to get pre-approved for a specific loan amount. (We’re here to help.) After you are pre-approved, you can start working with a real estate agent to find a home that's best for you and your family.
Buying your dream home using a VA loan means you’ll have a concrete reminder of the great work you've done—both for your future and the future of our country.
Thank you, Veterans, for your service!
--The Lower.com Team
