While there are many reasons to choose to buy a home with a Department of Veterans Affairs home loan, first-time homebuyers who qualify for the benefit may enjoy added perks when using their VA home loan entitlement.
VA Loan Advantages for the First-Time Homebuyer
Buying a first home is one of life's major milestones, and first-time homebuyers in particular may appreciate any savings they can get. The money saved by first-time homebuyers as a result of choosing the VA home loan program over other mortgage types, which require more money upfront, can be put toward moving costs, home improvements or future planning like college funds and retirement accounts.
No Down Payment Option
Many first-time homebuyers don't have enough savings for a down payment on a home purchase. And first-time homebuyers do not have proceeds from the sale of a prior home to put toward their real estate purchase.
VA home loans allow eligible borrowers to buy a home with as little as zero money down. When compared to most other mortgage programs, which may require 3.5% to 20% cash down, a VA-guaranteed mortgage can help first-time borrowers retain any savings they do have for future use.
No Private Mortgage Insurance (PMI) Required
Because most first-time homebuyers do not have 20% to put down, they will likely be required to pay private mortgage insurance (PMI) if they use a conventional loan program.
This is another reason many first-time borrowers love the VA mortgage program. The VA backs a portion of every VA loan, which eliminates the need for PMI, saving homebuyers hundreds of dollars each month.
Related: 10 Things to Know About VA Loan Eligibility
Relaxed Credit Qualifications
For a first-time homebuyer, establishing credit can take time. Many conventional mortgage programs have stringent credit qualifying guidelines. VA qualifying guidelines can be more relaxed. The lender has flexibility to decide whether the potential VA borrower is a good credit risk. VA-approved lenders consider a borrower's credit, debt-to-income ratio, residual income and other factors.
Ready to start the VA loan process? Read about how to confirm your eligibility for a loan.
Lower VA Funding Fee
Among those who use the VA home loan program, first-time homebuyers are charged the lowest VA funding fee (except for surviving spouses and disabled vets, who are exempt from this fee). Most first-time VA loan users will pay 2.15%.
Service Requirements for VA Home Loan Programs
You may be eligible for VA loan benefits if you didn't receive a dishonorable discharge and you meet the minimum active-duty service requirement based on when you served.
Related: VA Loan Tips for Disabled Veterans
Service Requirements for Veterans and Service Members on Active Duty
You meet the minimum active-duty service requirement if you served:
- Between Sept. 16, 1940, and July 25, 1947 (World War II), for at least 90 days, or less than 90 days if you were discharged for a service-connected disability.
- Between July 26, 1947, and June 26, 1950, for 181 continuous days, or less than 181 days if you were discharged for a service-connected disability.
- Between June 27, 1950, and Jan. 31, 1955 (Korean War), for at least 90 days, or less than 90 days if you were discharged for a service-connected disability.
- Between Feb. 1, 1955, and Aug. 4, 1964, for 181 continuous days, or less than 181 days if you were discharged for a service-connected disability.
- Between Aug. 5, 1964, and May 7, 1975 (Vietnam War), or from Nov. 1, 1955, to May 7, 1975, if you served in the Republic of Vietnam, for at least 90 days, or less than 90 days if you were discharged for a service-connected disability.
- Between May 8, 1975, and Sept. 7, 1980 (post-Vietnam War period), or between May 8, 1975, and Oct. 16, 1981, if you served as an officer, for 181 continuous days, or less than 181 days if you were discharged for a service-connected disability.
- Between Sept. 8, 1980, and Aug. 1, 1990, or between Oct. 17, 1981, and Aug. 1, 1990, if you served as an officer, for 24 continuous months; or the full period (at least 181 days) for which you were called to active duty; or at least 181 days if you were discharged for a hardship, or a reduction in force; or less than 181 days if you were discharged for a service-connected disability.
- Between Aug. 2, 1990, and the present (Gulf War period to present), for 24 continuous months; or the full period (at least 90 days) for which you were called or ordered to active duty; or at least 90 days if you were discharged for a hardship, or a reduction in force; or less than 90 days if you were discharged for a service-connected disability.
- If you're on active duty now, for 90 continuous days.
Service Requirements for National Guard Members
You meet the minimum active-duty service requirement if you served:
- Between Aug. 2, 1990, and Nov. 11, 1998 (Gulf War), or between Nov. 12, 1998, and the present (post-Gulf War period), for 90 days of active-duty service
- Any time period, for at least 90 days of non-training active-duty service; or at least 90 days of active-duty service, including at least 30 consecutive days (your DD214 must show 32 USC sections 316, 502, 503, 504, or 505 activation); or six creditable years in the National Guard and you were discharged honorably or placed on the retired list.
Service Requirements for Reserve Members
You meet the minimum active-duty service requirement if you served:
- Between Aug. 2, 1990, and Nov. 11, 1998 (Gulf War), or between Nov. 12, 1998, and the present (post-Gulf War period), for 90 days of active-duty service
- Any time period, for at least 90 days of non-training active-duty service; or six creditable years in the Selected Reserve, and at least one of these descriptions is true for you:
- You were discharged honorably, or
- You were placed on the retired list, or
- You were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable, or
- You continue to serve in the Selected Reserve
Source of Service Requirements for VA Home Loan Programs: VA.gov
Related: 5 Things Military Spouses Should Know Before Buying Their First Home
Steps to Obtaining a VA Loan
For many borrowers, applying for any kind of mortgage may seem daunting. But, when broken down, this rundown of six steps to getting a VA loan is easy to understand.
1. Select a VA-Approved Lender
On the surface, it might appear that any lender will do. However, if you dig a little deeper, you may discover that not all lenders are the same. First, the only lenders that can originate VA mortgages are those approved by the U.S. Department of Veterans Affairs. Second, some lenders focus primarily on conventional loans, while others concentrate almost exclusively on the VA loan program for military clients. Using a VA specialty lender with extensive knowledge about the VA loan process vs. a lender that only funds a few VA mortgages a year may translate into an easier and quicker loan process. Begin here to connect with a VA specialty lender.
2. Obtain a Certificate of Eligibility (COE)
An experienced lender can help you get a Certificate of Eligibility. The COE proves you meet initial eligibility standards for VA loan benefits. It also lets the lender know your level of entitlement -- the amount the Department of Veterans Affairs will guarantee on your VA loan. To get your COE, give your lender a bit of information about your military service. Usually, a COE can be acquired online instantly through a lender's portal or through the eBenefits portal on the va.gov website. Those service members or surviving spouses whose COEs cannot be obtained online can get theirs by mail. A VA lender or the VA can help direct you to the right resource.
3. Prequalify for Your Loan Amount (optional)
Pre-qualifying is important, but not required. But this step can save you time and potential surprises later. To prequalify for your loan amount, you'll have a candid conversation with your VA loan professional about your income, credit history, employment, marital status and other factors. The prequalifying step can also reveal areas that need improvement before you can be approved, such as credit or debt-to-income ratio.
While a prequalification letter gives you a ballpark price range for house hunting, it does not guarantee you will be approved for a loan, and your lender will later have to verify the information you provide. You'll still need final approval by underwriting once all documents have been received and reviewed (see Step 5).
4. Go House Hunting and Sign a Purchase Agreement
The fourth step is usually the one borrowers enjoy the most. Working with a real estate professional who specializes in the VA process can help you get the most out of your benefits. The VA allows certain fees and costs to be paid by the seller (if both you and the seller agree), and a knowledgeable agent will know this and help you negotiate seller-paid fees. Once you've got a signed purchase agreement, you can move forward in the VA loan process.
Looking for the right agent? We can help. Find a veteran-friendly agent today.
5. Lender Processes Application and Orders VA Appraisal
To finish your initial application, you'll need a signed purchase contract. With this, your lender can order the VA appraisal. Not just any appraiser will do. Only a professional certified to perform appraisals to VA standards can evaluate the home being considered for VA financing. The VA appraiser will make sure the price you've agreed to corresponds with the home's current value.
Another vital part of the VA appraisal is a home inspection to ensure it meets the VA minimum property requirements (VA MPRs). The inspection, which is separate from the VA appraisal, focuses on any code violations or defects. While many borrowers have heard horror stories about the length of the VA appraisal process, the Department of Veterans Affairs gives appraisers 10 days from order to completion, barring extenuating circumstances.
While you're waiting for appraisal documents, you'll be busy submitting documents of your own to your VA-approved lender to show you qualify for the loan. If the home passes appraisal for value and VA minimum property requirements, and it's verified by the lender that you qualify for your loan, the underwriter will give his or her stamp of approval.
6. Close on Your Loan and Move In
After being approved by the underwriter, all that is left to do is close and move in. During closing, the property legally transfers from the former owner to you. Closing requires you to sign documents that confirm you understand and agree to the terms of the loan. You will need to provide proof of homeowners insurance and, if required, pay closing costs. Once you've signed all your closing documents, you'll get the keys to your new home.
These steps may not always happen in the order above, but they outline the typical process. Your lender may need to take other steps. For more information about VA loans, contact an experienced VA-approved lender.
Ready to Get Started?
If you're ready to get started, or just want to get more information on the process, the first step is to get multiple rate quotes with no obligation. You can then discuss qualifications, debt-to-income ratios, and any other concerns you have about the process with the lenders.
