VA loans are the most significant benefit provided to our Nation’s Veterans.
They don’t require a down payment or mortgage insurance.
In this article, we’re going to cover everything there is to know about VA loans. How they work, the loan requirements, who’s eligible, and how to get approved.
What is a VA Loan?
The U.S. Department of Veterans Affairs guarantees mortgage loans for veterans of the U.S. military members and their surviving spouses. The VA does not issue loans directly; private lenders do. They guarantee the loan, acting as an insurance policy for the lender, reducing their risk, and allowing them to lower their borrower requirements.
VA loans are the cheapest type of mortgage option because they offer 100% financing and no mortgage insurance premiums.
How VA Loans Work
- They’re offered by private mortgage lenders
- Zero down payment, you can finance 100% of the price of the home.
- Mortgage insurance premiums (PMI) is not required.
- VA funding fee of 2.15% for first-time buyers or 3.3% for repeat buyers is needed.
- Military service persons and their spouses may be eligible.
- If you cannot afford the payments, the VA will negotiate with the lender on your behalf to save you from foreclosure.
Benefits of VA home loans
VA loans have many benefits. Low-interest rates, zero down payment, and no mortgage insurance.
VA Loan Requirements
- 580 minimum credit score
- 50% maximum debt-to-income ratio
- 2.15% VA funding fee
- 24 month waiting period after a bankruptcy or foreclosure
- For primary residence only
VA Service Requirements
Basic Service Requirements:
- Active-duty service member
- Current or former activated National Guard or Reserves
- Surviving spouse
- Discharged member of the National Guard or Reserves and never activated
- Discharged member of the National Guard and were never activated
Length of Service Requirements
- Served for 90 consecutive days of active service in wartime, OR
- Served for 181 days of active service during peacetime, OR
- Has more than 6 years in the Reserves or Nations Guard, OR
- Active-duty Servicepersons, OR
- Servicepersons on active duty who have served for 90 days of active service, OR
- Reservists and members of the National Guard
* VA loans are not available to Dishonorably discharged veterans
VA Credit Requirements
VA loans do not have a minimum credit score requirement. The minimum score requirement will vary depending on the lender. Some VA lenders require a 620 credit score to be eligible for a VA loan. However, some VA-approved lenders can work with a credit score as low as 500.
Lenders consider your entire credit history, not just your FICO score when determining if you’re eligible. If you have a credit score below 580, it’s highly recommended that you improve your credit score before applying.
- No minimum credit score requirement (580-620 is standard)
- 24 month waiting period after a bankruptcy or foreclosure
- Limited debt in collections
- No mortgage late payments in the past six months
- No more than mortgage late payments in the past 12 months
VA Qualifying Income:
- W2 Income
- Overtime and bonus pay
- Seasonal positions
- Part-time income
- Income from a second job
- LES income
- Child support
- Self-employed income
The Department of Veteran Affairs does not state a maximum debt-to-income ratio (DTI ratio). However, lenders typically want to see a DTI ratio at or below 50%. 50% is not a hard cap, and these are certain situations in which a lender will allow higher debt-to-income ratios.
First-time homebuyers can qualify easier given the fact that they have no down payment and no mortgage insurance. However, these loans are not just for first-time buyers, and veterans can use a VA home loan multiple times throughout their lifetime.
VA entitlement is a figure that shows how much you can qualify for. If you’re a basic entitlement will be enough to qualify for a $510,400 loan or higher in certain high-cost areas. It would help if you spoke to a VA lender to determine how much of an entitlement you qualify for.
VA Funding Fee
Because the VA loan program doesn’t require mortgage insurance, there is a one-time VA funding fee to help fund the VA program.
The funding fee amount will depend on the loan amount and whether you’re using a down payment. It needs to be paid at closing, and you may be able to roll the funding fee into the loan and finance it.
VA Funding Fee Chart
VA funding fee not required if you are:
- Receiving VA payments for a service-connected disability, OR
- A veteran who would be entitled to receive compensation or if didn’t receive retirement or active duty pay, OR
- Are a surviving spouse of a Veteran who died in service
National Guard and Reserves
VA IRRL (Cash-out refinance) Chart
VA funding fee for IRRL’s (VA cash-out refinance) is the same for all military personal, whether Reserves, Regular Military, or National Guards.
VA Certificate of Eligibility
To receive a VA-insured mortgage loan, you must have a certificate of eligibility from the Dept. of Veterans Affairs. Your mortgage lender can get one on your behalf, or you can visit the VA website to receive your certificate.
VA vs. Conventional Loans
VA Loan Alternatives
- Conventional 97 Loans – Fannie Mae and Freddie Mac created the Conventional 97 loan program, which requires just a 3% down payment. They are more difficult to qualify for, requiring a 680 credit score.
- HomeReady / Home Possible Loans – Fannie Mae and Freddie Mac created the HomeReady and Home Possible loan program to compete with low down payment home loans such as FHA loans. With just 3% down and a minimum credit score of 620, you may be eligible.
- Conventional Loans – A conventional loan is not backed by the Government and meets the requirements of Fannie Mae and Freddie Mac, the two largest buyers of home loans.
- FHA Loans – Borrowers may qualify for an FHA loan with a credit score of just 500 with a 10% down payment. Borrowers with a 580+ credit score require just 3.5% down.
- USDA Loans – USDA loans are for low-to-median income homebuyers in rural parts of the country. The biggest benefits are that they don’t require a down payment and have the lowest mortgage insurance rate of any home loan of just .35%.
VA Streamline Refinance
With a VA mortgage loan, you may qualify to refinance your mortgage with a VA streamline refinance to reduce your interest rate and lower your monthly payment.
- 210 days after closing, you are eligible to refinance your VA mortgage.
- VA streamline refinance loans are quick and easy, requiring very little documentation, no income verification, and in some cases, no credit check.
- It must have a net tangible benefit to close. You must be able to reduce your interest or lower your payments by at least 5% to qualify.
Frequently Asked Questions
What is the VA Loan Limit?
Effective January 1, 2020, VA home loans will no longer have loan limits. Your debt-to-income ratio will determine how much of a loan you’re approved for with no cap.
What is the required credit score for a VA loan?
The VA does not set a minimum credit score requirement, so lenders use their own guidelines, and most VA lenders require a 580-620 credit score. However, some lenders may be able to work with VA borrowers with scores below 580.
What is a certificate of eligibility for VA home loans?
A certificate of eligibility is a document provided by the U.S. Dept of Veteran Affairs, showing you can 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 mortgage insurance 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 takes 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.
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 this, they refinance the completed home with a VA Streamline Refinance Loan.
Can I use a co-borrower on a VA loan?
Yes. But if your co-borrower is not a spouse or an eligible VA borrower, then the guaranty only applies to your VA-eligible stake. Since the VA typically guarantees 25% of the loan, a co-borrower with a non-eligible VA borrower only carries a 12.5% guaranty. Thus, a 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, you will not qualify even if your co-signer has perfect credit. The lender will use the lower of the two scores.
The Bottom Line
The VA home loan program offers a wealth of benefits for many home buyers. They are easier to qualify for than conventional loans and have lower interest rates.
They are great for all Veterans, especially first-time homebuyers, because they offer zero down payment and no mortgage insurance, making them the cheapest mortgage available.
Do you think you’re ready to buy a new home using your VA benefits?