Benefits of VA Home Loans and VA Mortgage Rates


BY The Lenders Network

There are several benefits to VA loans.

No down payment and low interest rates just to name a few.

In this article we’ll cover all of the benefits of VA loans.

RATE SEARCH: Check Current VA Rates

Low VA Mortgage Rates

As low as a quarter of a point in interest can cost you tens of thousands of dollars on a mortgage. So getting the lowest rate is very import.

VA Loans historically come with some of the lowest rates of any type of mortgage available. Here is a snapshot of mortgage rates from June 19th 2017.

Current VA Mortgage Rates
Conventional30 yr Fixed (4.128% APR)
Conventional 15 yr Fixed (3.581% APR)
VA 30 yr Fixed (3.78% APR)
VA 5/1 ARM (1/1/5) (3.46% APR)

As you can see on a 30 year fixed rate loan, a VA mortgage has about a 0.35% lower rate than a conventional loan. It may not seem like a lot but the savings is significant over the life of the loan.

The best way to ensure you get the lowest interest rates on your Va loan is to compare loan offers with multiple lenders. Get a rate quote from at least 4 different mortgage companies.

RATE SEARCH: SPEAK TO LENDERS AND GET RATE QUOTES

Benefits of VA Home Loans: Eligibility, Advantages, and FAQ’s

Former and current servicemen and servicewomen have given and are still giving a lot to and making sacrifices for America. It is only befitting that the country notes and appreciates their efforts by making certain that they too have a slice of the American dream they have fought and bled for. The VA home loan program is an epitome of that appreciation.

Granted, for a while, it had the infamous reputation of being associated with a long drawn-out process. Recent changes and improvements have shortened processing time and ramped up the perks and benefits of getting a VA mortgage.

Background of VA Loans

VA home loans are one of the many benefits available to veterans (and presently to active members of the military and military spouses who qualify). The VA loan program was created in 1944 (10 years after the FHA was created in 1934) to help returning WW II veterans purchase homes.

Currently, the Veterans Benefits Administration (VBA), one of three subdivisions of the VA, oversees the program. VA Home loans are not provided directly by the VA. Instead, the loan is provided by private lending institutions.

The VA guarantee thus allows lenders to provide a slew of benefits to Veterans. Low interest rates, no down payment, and no PMI (private mortgage insurance)/MIP (mortgage insurance premium) payments; that would otherwise be unavailable to military borrowers on conventional and even other government-backed loans.

Furthermore, the VA home loan can be used for several purposes such as to:

  • Purchase or build a new home
  • Refinance a mortgage
  • Improve or repair an existing home
  • Install home efficiency measures

In recent years, these and various other reasons have led to a surge of interest in VA loans. This is evident by a 300% increase in VA mortgages volume between 2008 and 2013 (a five-year period).

In 2016, the top 300 lenders by volume issued 705,395 loans, amounting to an all-time high total loan size of $178.6 billion. In total, the VA loan program has guaranteed mortgage loans for over 21 million veterans, active service members, and surviving spouses since inception.

Purchase Loans

As the name suggests, this is the VA loan type used to purchase new homes. Much of the content in this guide henceforth would refer to this loan type, unless where distinctions are made.

Interest Rate Reduction Refinance Loans (IRRRL)

If a borrower already has a VA home loan but would want to refinance their existing VA mortgage. By refinancing into a lower interest rate, thereby reducing mortgage costs, then s/he would have to take advantage of the IRRRL. It is also called the VA Streamline Refinance Loan. It features less paperwork and reduced requirements (such as no request for certificate of eligibility). Also very little cash is required out of pocket  and it can be closed quickly.

Furthermore, some homeowners may not need an appraisal to secure the refinance loan. Also, closing costs can be rolled into the overall loan amount. That said, to be eligible, the military borrower MUST certify that he or she presently occupies or had previously occupied the property for which he or she is seeking a refinance loan for.

Eligibility Criteria and Requirements for VA-backed Loans

Basic Service Requirements:

  • Had served for 90 consecutive days of active service during wartime, OR
  • Served for 181 days of active service during peacetime, OR
  • Has more than 6 years in the National Guard or Reserves

These minimum terms of service requirement may be waived for veterans in certain circumstances. If they were discharged due to government convenience, hardship, reduction in force, certain medical conditions or a disability connected to military service.

Dishonorably discharged veterans are ineligible for any type of VA home loan.

Who else is eligible:

  • Active-duty Servicepersons
  • Servicepersons on active duty who have served for 90 consecutive days of active service are eligible
  • Reservists and Members of the National Guard

Members of the Reserves and National Guard who have served for at least six years in the Selected Reserve or National Guard and continue to serve or were transferred after honorable service to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve, were placed on the retired list, or were honorably discharged.

Speak to a VA lender and check current VA mortgage rates

Who Else Is Eligible?

  • Cadets of the U.S. Military, Air Force, or Coast Guard Academy
  • World War II Merchant Seamen
  • Midshipmen at the U.S. Naval Academy
  • U.S. Public Health Service officers
  • National Oceanic & Atmospheric Administration officers

Where applicable, military borrowers have to provide a valid Certificate of Eligibility. To obtain the COE, a borrower would have to complete a VA Form 26-1880 and make a request.

Cash-Out Refinance Loans

If a borrower would prefer to tap into his or her property’s equity and use it as cash, the borrower can take a cash-out refinance loan. The cash-out loan then replaces your existing mortgage, unlike a home equity loan that complements your existing loan. The cash you get may be used to cover debt payments. Cash can also be used for emergency expenses, upgrades and remodeling, and other needs.

Military Spouses

The serviceperson to whom the spouse is married has been officially declared missing in action or a prisoner of war for at least 90 days The serviceperson to whom the spouse was married died on active duty, or as a totally disabled veteran, or due to a service-connected disability and the spouse has not remarried

If a spouse obtained a VA mortgage with an active-duty serviceperson or veteran who died afterwards. The spouse can be eligible for a VA streamlined refinance loan (IRRRL). In this case, the death of the serviceperson or veteran need not be service-connected.

Proof of Service

To obtain the proof of service, the borrower would have to complete a Standard Form 180 and mail it to the appropriate custodian of military service records. The reverse of the form contains instructions that would assist in determining the correct forwarding address.

Income Requirements for VA Loans

Theoretically, there isn’t any income ceiling to worry about when seeking a VA home loan. Nonetheless, lenders ensure that military borrowers have a stable, reliable income that will cover the new mortgage payment as well as existing major monthly expenses, before handing out loans.

More importantly, borrowers should have left over cash, called residual income, that should go towards typical family needs, such as transportation, food, etc. The reason for residual income requirements is twofold. Firstly, it ensures borrowers have a decent cushion to handle emergency, unforeseen expenses. Secondly, it helps preserve the low foreclosure rates of VA mortgage. VA foreclosure rates are the lowest amongst all major loan options.

VA Credit Requirements

Typically, lenders require a minimum credit rating of 620 for VA loans. There are some mortgage brokers and wholesale lenders across the country that may be able to approve your VA loan with bad credit as low as 580.

Speak to a VA lender and check current VA mortgage rates

VA Property Requirements

Modern real estate is diverse. The number of choice are certainly exciting. However, not all property types are eligible for VA loans. The gold standard are single-family homes. Modular homes are also eligible.

Condominiums and townhomes are not always eligible. Reason being that for a condo unit to be eligible, the entire complex has to meet VA approval.

Manufactured or mobile homes may meet VA requirements, but it is difficult to find a lender willing to finance homes of this type. Reason being that they are generally adjudged to be depreciating properties.

Properties that are generally not in “move-in ready” condition, including a fixer-uppers are ineligible for VA loans.

A borrower who intends to take out a VA loan for a new construction, would run into similar hiccups of finding a willing lender like those looking to finance manufactured homes.

VA construction loans are tricky but not impossible to qualify for. Alternatives exist.

A borrower could use a conventional construction loan (that is, a non-VA loan) to build the home. After the home is complete, the borrower could then use an IRRRL (VA Streamline Refinance Loan) to refinance the property.

Another alternative is to find a contractor willing to build a home on the basis of a VA pre-approval status. Then when the home is complete, the borrower purchases the home with a regular VA loan.

VA Loan Limits

VA loan limits are the caps for the maximum amount of liability VA can assume. To put it simply, there is only so much the VA can take on without a borrower making a down payment.

If the value of the home a qualified borrower needs the loan for exceeds the VA loan limit, then the borrower has to make a down payment. The down payment is typically 25% of the difference between the loan limit and the price of the home.

As an illustration, to buy a home with a price tag of $624,100 in a county with VA loan limit of $424,100, the borrower would have to make a down payment of 25% of the difference of $624,100 and $424,100 ($200,000). That equals $50,000.

The $50,000 represents 8% of the home price.

In comparison, conventional loans may request 20% down payment of the home price. That equals $124,820. That said, the loan limits are generous. For eligible borrowers in most parts of the country, the limit is $424,100 before a down-payment requirement kicks in.

And there are provisions for higher limits in more expensive regions. For instance, the VA loan limit for home buyers in Seattle, Washington is $592,250.

The limit maxes out at $721,050 for buyers in Honolulu, Hawaii.

Speak to a VA lender and check current VA loan rates

Top Benefits of VA Loans

VA Loans give 100% Financing

Down payments can often be a limiting factor for prospective homebuyers. Unfortunately, it is a MUST on most home loan programs. Not on the VA home loan program anyway. You get financing for 100% of the purchase price with no strings attached.

ZERO Mortgage Insurance

Make no mistake, mortgage insurance is vital to protect lenders against defaults. In general, lenders would ask for regular mortgage insurance payments from borrowers if the down payment made was less than 20%.

This is true for conventional loans, with the insurance called Private Mortgage Insurance (PMI), as well as for government-backed (FHA and USDA Guaranteed) loans, with the insurance called Mortgage Insurance Premium (MIP). However, for VA loans, the government assumes the risk of default that’d typically be covered by a PMI or MIP.

ZERO Prepayment Penalty

Say, a borrower decides to sell the home shortly after taking a VA purchase loan. He or she is at liberty to go ahead and not be bothered about a prepayment penalty or early-exit fee. The time frame doesn’t matter.

Furthermore, refinancing a VA loan does not have any restrictions. A borrower can refinance via a VA Streamline Refinance Loan, a VA Cash Out Refinance Loan, or even a non-VA refinance loan at any time.

VA Loans have LOW Closing Costs

Closing costs are considerably lower compared to other loan types because the VA place caps on how high they can get. Savings made could be directed towards other housing-related expenses, such as home improvements or moving costs.

LOW VA Mortgage Rates

Aside the zero down, zero MIP, and low closing costs policies, another major positive resulting from the government guarantee of VA loans is that lenders can afford to give VA borrowers lower interest rates than are available for conventional borrowers.

VA loans may go as far as 1% below conventional interest rates, which leads to increased savings.

Relaxed Income Requirements

Income requirements are vital for the dual reasons of the borrower being able to settle existing and new debt payments comfortably as well as protecting the lender (and by extension, the VA) from the deleterious effects of high foreclosure rates.

One of the income criteria is a decent debt-to-income (DTI) ratio. In layman’s parlance, it refers to how much of an applicant’s income is used to settle existing debts (such as student loan, car loan et cetera). If payment of existing debts takes out a huge percentage of the borrower’s income, then piling on mortgage payments doesn’t help anyone in the long run.

However, the difference is how conventional and FHA lenders approach the DTI requirements compared to VA lenders. For conventional and FHA loans, the alarms generally go off at around 36%. For VA loans, there is more flexibility. The standard is 41%. On select occasions though, borrowers of DTI ratios of as much as 55% may still qualify. Although, this depends on the lender and if the borrower meets other requirements.

Furthermore, lenders often recognize Basic Allowance for Housing (BAH) as effective income for qualified active military servicepersons. The implication is that active military servicepersons may use their BAH to pay part or all of their monthly mortgage costs. See all available low income home loans available in 2017.

VA Loans are easy to get approved for

As described already, the rules are more flexible for VA loan borrowers than borrowers of other types of loans. This makes qualifying for a VA loan relatively easier. Accordingly, this significantly reduces the barrier to homeownership.

Multiple Loan Offers and Varieties to Choose from

One upside to conventional loans is that a borrower isn’t stuck to a one-size-fits-all solution. An applicant can shop around for an offer that sits well with his or her needs. VA loans also have this benefit.

VA home loans aren’t offered directly by the VA, they’re offered by the same institutions that also offer conventional loans—the banks, credit unions, savings-and-loans institutions, and mortgage lenders. Thus, a military borrower can check out and compare loan offers from multiple lenders to choose which works best for his or her budget.

In similar vein, VA loans are available in different flavors. Fixed rate or adjustable rate, 15 year fixed and 30 year fixed rates, purchase or refinance, for a single-family home or a modular home, for repairs or to make a home more energy efficient.

VA Funding Fee

Buying a home comes with multiple associated “fees.” A lot of them are wrapped up into closing costs. One of these fees is called the VA funding fee. It’s an upfront cost tied to the loan amount, down payment, eligible service and a host of other factors.

View the 2017 VA funding fee Chart for VA mortgages.

However, borrowers do not have to pay this fee in cash. According to VA guidelines, the fee could be rolled into total loan amount, to make way for a true zero down mortgage loan.

Furthermore, some VA borrowers are exempt from paying the VA funding fee. A waive is valid for veterans who receive VA disability compensation and unmarried surviving spouses of veterans who died in service or due to a service-connected disability.

Loan Transfer

A borrower qualifies and takes out a VA home loan for his or her property, and in the future chooses to sell the property to a homebuyer who is eligible for a VA loan; according to VA guidelines, the VA home loan could be transferred to the future homebuyer.

Most VA home loans are transferable, or to use the industry term “assumable.”

Speak to a VA lender and check current VA mortgage rates

VA Loan FAQs

What is a certificate of eligibility for a VA home loan?

A certificate of eligibility is a document provided by the U.S. Dept of Veteran Affairs showing you are eligible to receive a VA home loan. You can apply for your certificate of eligibility on the Veteran Affairs website.

Can I get a VA loan in the National Guard?

Yes.The following servicemen and servicewomen qualify for a VA loan.

  • Cadets of the U.S. Military, Air Force, or Coast Guard Academy
  • World War II Merchant Seamen
  • Midshipmen at the U.S. Naval Academy
  • U.S. Public Health Service officers
  • National Oceanic & Atmospheric Administration officers

Do I need PMI with a VA home loan?

No. Fortunately VA loans do not require PMI. This is a huge savings for Veterans.

How many times can you use a VA loan to buy a house?

Your VA entitlement will restore if you pay off the loan. There is a one time VA entitlement reinstatement provision allowing a Veteran to buy a second home or investment home.

How long does it take to close VA home loans?

The answer wouldn’t be true for everyone. The home buying process take different lengths for military borrowers, with unique credit histories, circumstances, locations, and several other factors playing a role.

For the last six months of 2016 (July to December), the closing time for VA loans was an average of 51 days. In comparison, the closing times for FHA applications and conventional home loans were 48.3 and 47.5 days respectively.

How do you qualify for a VA Loan?

Many lenders across the country offer VA loans. You can contact your local bank or credit union. You can also complete the form on our website and we will refer you to a few VA lenders so you can compare rates.

Can I use a VA home loan to build a home?

Yes. Although this can be difficult citing red tapes and complex directives.

The preferred route for many military borrowers is to negotiate a private (conventional) home construction loan. After which, they refinance the completed home with a VA Streamline Refinance Loan.

Can I co-borrow a VA loan?

Yes. But if your co-borrower is not a spouse or an eligible VA borrower, then the VA guaranty only applies to your VA-eligible stake. Since the VA typically guaranties 25% of a VA home loan, a co-borrowed VA loan with a non-eligible VA borrower only carries a 12.5% guaranty. Thus, a bit of down payment may be necessary.

A lender will use the lower of the applicant’s score to determine eligibility. If you want to have a co-signer because you have bad credit, even if your co-signer has perfect credit, you will not qualify. The lender will use the lower of the two scores.

Speak to a VA lender and check current VA mortgage rates

The Lenders Network has the largest network of mortgage lenders that specialize in home loans for borrowers with all types of credit scores. We will match you will the best lender based on your specific situation.