Are you looking to purchase a home or refinance your existing one?
If so, VA home loans are an increasingly popular and easy way for veterans and active-duty military personnel to finance their dream homes. With flexible terms and competitive interest rates, these loans can help make homeownership possible for those who have served our country.
In this article, we’ll discuss the key points of VA home loans – from eligibility requirements to loan limits – as well as why they should be considered when buying or refinancing a home. So if you’re ready to explore all that VA Home Loans have to offer, contact us today!
What is a VA Loan?
VA loans are backed by the U.S. government through the Department of Veterans Affairs and are designed to help veterans purchase or refinance a home with no down payment or private mortgage insurance (PMI). The VA loan limits are typically higher than those for conventional mortgages.
How Does A VA Home Loan Work?
The loan is not made by the VA; rather, it’s made by approved lenders who work with the VA. The loan is guaranteed by the VA, however, if you default on your loan, the VA will pay off the loan in full.
Due to their easier credit score requirements, VA mortgages are considered non-conforming loans, which allow more flexibility for clients to qualify. There are several reasons why VA loans are better than conventional loans, such as lower interest rates, lenient borrowing requirements, and no down payment required at closing. VA loans do not require monthly mortgage insurance either.
Who Qualifies For A VA Loan?
You must meet at least one of the following criteria to qualify for a VA loan:
- Served 181 days of active service during peacetime.
- Served 90 consecutive days of active service during wartime.
- Served in the National Guard or Reserves for more than six years or 90 consecutive days under Title 32.
VA loans are also available to spouses of service members who have lost their lives in the line of duty or have been disabled by service. The spouse cannot have remarried, though there are exceptions.
VA Loan vs. Traditional Mortgages
The main difference between a VA loan and a traditional mortgage is the down payment.
With a conventional mortgage, a down payment of nearly 20% is required, in addition to monthly private mortgage insurance that can add up throughout the life of the loan.
With a VA loan, there’s no down payment and no mortgage insurance.
Types of VA Loans
Qualified Veterans have access to multiple home loan options through the VA loan program.
VA Purchase Loan
Veterans and service members have a unique opportunity to get into a home without making any down payment through the VA loan. Not only can they buy single-family homes, but they can also use the VA purchase loan to buy other types of properties like condos and townhouses.
This is an incredible offer that promises to make dreams of homeownership come true for our heroes!
VA IRRRL
The VA Interest Rate Reduction Refinance Loan (IRRRL) is one of the two refinance options available to Veterans.
And it’s the easiest.
Also called VA Streamlines, these are simple, low-cost refinance loans that don’t require credit underwriting, income verification, or appraisals.
You’re in, and you’re out.
To qualify, you must already have a VA loan.
The other requirement is that the new rate cannot be higher than your current rate by more than 1/4%.
VA Cash-Out Refinance
With a VA Cash-Out refinance, qualified homeowners can refinance their mortgage and access the equity in their home to take out cash. These loans are available to veterans with and without current VA loans.
Veterans with non-VA mortgages can use this option as a basic rate-and-term refinance because the guidelines and loan-to-value requirements vary by lender.
Before we forget to mention…
The VA Cash-Out Refinance is a no-appraisal, no-income verification loan with favorable credit and debt-to-income ratios. Additionally, the fees associated with the VA Cash-Out Refinance are lower than most other VA loans.
VA Energy Efficient Mortgage
This type of loan allows veterans to finance energy-efficient improvements into their mortgage, making it easier and more affordable for them to make upgrades that will save money in the long run on utility bills.
The VA also requires lenders participating in this program to meet certain standards regarding construction quality and materials used – so you can be sure that any work done meets these high standards.
VA Loan Eligibility Requirements
Here’s a brief rundown of what’s needed to be eligible for a VA loan:
Property Type
You can use a VA loan for one-to-four-family homes, condos, or even manufactured homes.
The property you buy must become your primary residence within 60 days of purchase to comply with VA loan occupancy requirements. VA loans cannot be used for vacation or investment properties, but they can be used to purchase one-to-four-family homes if the members use them as their primary residence.
Credit Score
While the VA doesn’t necessarily have a minimum credit score requirement, lenders do and it’s usually around 600.
Each lender has their reasons for what they add on top of the VA’s guidelines, so it’s best to find out what your score is first, and then look around for approved VA lenders that can work with that score.
Income
There are no limits on the income that’s required, but you do need to fall in line with the DTI ratios set by the lender you choose to work with. These ratios are different from one lender to the next, but for the most part, your ratios should be below 41%.
Some lenders may try to push you to a max of around 45% or higher if approved, so be sure to keep that in mind when you’re shopping around for a loan.
Loan Limits
As a rule of thumb, you can just go off of conventional loan limits, which as of 2024, are $647,200.
Aside from that, there are no VA loan limits except in a few situations.
The first situation is where you can’t use your full VA entitlement. If that’s the case, there are specific equations that are used to calculate your maximum loan amount (that’s done by the lender).
The next loan limit scenario is if you are in a high-cost area, in which case, you have higher loan limits. These are called VA jumbo loans and those limits can sometimes go over $1,000,000.
Down Payment And Assets
VA loans are 100% financing, so no down payment is required.
Just because you don’t need a down payment doesn’t mean there are no costs involved with a VA Loan.
Here’s what to pay attention to:
- Funding Fee: This is a one-time funding fee of 2.15% that’s meant to pay for the administrative costs associated with the loan program. The good news is that this can be rolled into the loan.
- Reserve funds: This is the amount that’s leftover in your bank account after you close. It’s a good idea to have 2-3x your mortgage payment which is made up of your principal, interest, taxes, and insurance.
VA Loan FAQ
What is a Certificate of Eligibility (COE)?
This document is issued by your County VA Office after you’ve submitted your DD Form 214 with your application. The COE lists the benefits for which you may qualify and is used to substantiate your eligibility for a VA home loan. It’s important to note that a DD Form 214 alone is not enough for a Certificate of Eligibility.
Is it better to use VA or a conventional loan?
If you’re a veteran, VA loan all day. Take full advantage of your VA home loan benefits.
How hard is it to get a VA loan?
Not hard at all. The guidelines and requirements are easier than other types of mortgage financing options.
Do you pay back a VA loan?
Of course, it’s a loan.
Is the VA loan a good option?
Absolutely. It’s 100% financing with no mortgage insurance. This opens the door to tons of opportunities and savings.
Wrapping It Up
If you’re a Veteran that has served our great country, the VA loan program can help you buy your dream home or refinance your existing mortgage with no down payment or private mortgage insurance. The VA doesn’t have regular income or credit score requirements, which makes the VA loan an easy option for those with less-than-perfect credit or limited income.
Contact us today for more information to see if you qualify for a VA Loan!
