VA Loans: The Complete Guide to VA Loans in 2020



VA loans are the most significant benefit provided to our Nation’s Veterans.

Zero down payment and no mortgage insurance.

In this article, we’re going to cover everything there is to know about VA loans.

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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 Do VA Loans Work?

  • A VA home loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs
  • The VA does not issue loans; private lenders issue them
  • Zero down payment, you can finance 100% of the price of the home
  • Military service persons and their spouses may be eligible
  • 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

 

VA Service Requirements

VA Loan Service Requirements

 Served 90 consecutive days of active service during wartime, OR

Served 181 days of active service during peacetime, OR

 6 years of service in the National Guard or Reserves, OR

 Are a spouse of a service member who died in the line of duty or service-related             disability.

More» VA Loan Requirements and Guidelines

VA Loan Eligibility

VA Loan Eligibility 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

* 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.

VA Credit Requirements

  • No minimum credit score requirement (580-620 is standard)

  • 24 month waiting period after a bankrupty 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

More» How to get a VA loan with bad credit

What are the benefits of a VA loan?

VA loans have many benefits. Low-interest rates, zero down payment, and no mortgage insurance.

12 Benefits of VA Loans

• No down payment

• No mortgage insurance premium (MIP)

• Low credit scores may be approved

• Flexible borrower requirements

• Low interest rates

• Lower closing costs

• Up to 50% debt-to-income ratio

• VA negotiates with the lender if you are facing foreclosure

• No loan limits

• The seller can pay 6% of closing costs

• Lower monthly payment than other loan types

• No Prepayment Penalty

VA home loan infographic

First-time Homebuyers

First-time homebuyers can qualify easier given the fact that there are zero 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

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.

You should speak 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 or not 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.

More» VA Loan Funding Fee Chart

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

VA Funding Fee Chart

Regular Military
Down payment Fee (first-time buyer) Fee (subsequent use)
0% 2.15 percent 3.3 percent
5-10% 1.5 percent 1.5 percent
10%+ 1.25 percent 1.25 percent

National Guard and Reserves and Chart

Reserve & National Guard Personnel
Down payment Fee (first-time buyer) Fee (subsequent use)
0% 2.4 percent 3.3 percent
5-10% 1.75 percent 1.75 percent
10%+ 1.5 percent 1.5 percent

VA IRRL (Cash-out refinance) Chart

VA funding fee for IRRL’s (VA cash-out refinance) is the same for all military personal, weather Reserves, Regular Military, or National Guards.

All Military Personnel, National Guard, and Reserves
Loan type Fee (first-time buyer) Fee (subsequent use)
IRRL’s 0.50 percent 0.50 percent
Manufactured Home Loans 1.00 percent 1.00 percent
Loan Assumptions 0.50 percent 0.50 percent

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.

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

Non-Qualifying Income

  • lottery winnings
  • gambling income
  • Unemployment benefits
  • All one-time income payments
  • inconsistent sources of income
  • Single bonus payment
  • Income from investment properties

VA Streamline Refinance

With a VA mortgage loan, you may qualify to refinance your mortgage using a streamline refinance to reduce your interest rate and lower your monthly payment.

A 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.

More» VA Streamline Refinance Program Requirements

What is the VA Loan Limit?

Effective January 1, 2020, VA home loans will no longer have loan limits.

Your income will determine how much of a loan you’re approved for with no cap.

Debt-to-Income Ratio

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.

Strong compensating factors for high DTI ratio

  • A loan-to-value ratio below 95%
  • High net worth
  • A large amount of cash in reserves
  • No payment shock
  • High income
  • Good credit score

 

VA Loan Frequently Asked Questions

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 VA guaranty only applies to your VA-eligible stake. Since the VA typically guarantees 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, you will not qualify even if your co-signer has perfect credit. The lender will use the lower of the two scores.

In Conclusion

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?

Get Approved for a Home Loan Today