Veterans Affairs (VA) loans are a great benefit of military service and are available to service members, veterans and surviving spouses. They offer key advantages not found in other mortgage types, including no down payment, relaxed credit requirements, limited closing costs and no prepayment penalties.
Even if you don't have a perfect credit score, your VA loan benefit may allow you to purchase, refinance, build or repair a home at an excellent interest rate. We're here to answer your most common questions about using your VA loan benefit.
What Exactly Is a VA Loan?
VA loans are provided by private lenders, including banks and mortgage companies. The VA makes these loans possible by guaranteeing a portion of the loan, enabling the lender to finance your home with excellent terms and rates.
Who Is Eligible for a VA Loan?
There are minimum active-duty service requirements that veterans and military personnel must meet to be eligible. These requirements can vary depending on when you served and whether your service took place during peacetime or wartime. National Guard members and reservists can also qualify.
Surviving spouses of members of the armed forces can be eligible for VA loans as well.
Everyone is required to obtain a Certificate of Eligibility (COE). If you have any doubt about your VA loan eligibility, a COE will clear it up. It's proof you're entitled to home loan benefits.
You can get a COE printed instantly through your lender if the VA has sufficient data for you and if the lender has access to the VA's WebLGY system. If you are not in the system, your lender can still help you obtain your document. Ask your lender to provide the correct forms to fill out and expedite the process.
Otherwise, you can apply for a COE by using VA Form 26-1880. This application process requires a copy of your DD-214 (Certificate of Release or Discharge from Active Duty) showing character of service.
Read More: Get the FAQs on VA Home Loans
How Difficult Is it to Get Approved for a VA Loan?
The VA itself doesn’t approve the loan. The approval process is instead performed by approved VA lenders. VA loans are relatively easy to qualify for if you meet the eligibility requirements. In addition, because the government backs a portion of each VA loan, private lenders face less risk, allowing more flexibility for loan approval. Therefore, it is possible to obtain a VA loan without a down payment and sometimes with lower credit standards.
However, keep in mind that you still must be approved by the lender, and you will need to show that your income will cover the mortgage payments.
Most lenders require a minimum credit score between 620 and 640 for VA loans. This number is taken from the borrower’s FICO number, which ranges from 300 to 850. The higher the number, the better the credit.
Some lenders may require higher credit scores, especially if the borrower has other risk factors such as high debt-to-income ratios.
Read More: VA Loan Income Requirements
Do I Have to Purchase PMI When Using a VA Loan?
No. By using your VA loan benefit, you can avoid PMI and save thousands of dollars.
PMI, or private mortgage insurance, protects the lender if you default on your loan or stop making payments. PMI usually is required on a conventional loan if you have less than a 20% down payment to put down on your home purchase.
Is My Offer Competitive with a VA Loan in Today's Market?
As of fall 2024, the U.S. housing market remains hot, driven by several factors, including limited inventory, high home prices, and fluctuating mortgage rates. Home prices continue to rise, with the median price for existing homes in January 2024 at $379,100, marking a 5.1% increase from the previous year.
The time it takes for a median home to sell varies by location, but the average time on the market in 2024 is generally between 30 to 60 days, depending on the market conditions of each area
With this much activity, VA borrowers may wonder whether their offer stands a chance of being considered.
To improve the chances of having their offer accepted, VA borrowers can:
- Get Pre-Approved: Preapproval is attractive to sellers, because an underwriter already has reviewed your loan application and examined your finances, income and employment, indicating the sale is likely to go through.
- Work with an Experienced Real Estate Agent: Agents familiar with VA loans can help structure competitive offers and address any misconceptions.
- Offer More Earnest Money: A higher deposit can show commitment. You may also wish to submit an offer above the asking price if that makes sense for you and your family.
- Be Flexible with Closing Dates: Accommodating the seller’s schedule can make an offer more appealing.
- Consider Covering Appraisal Gaps: VA loans have strict appraisal requirements, so offering to cover any potential gaps between the appraisal and the offer price can reassure sellers.
- Include a Personal Letter: Detailing your military service, proof of financial stability, VA loan pre-approval, and a personal message explaining why the home is special to you, demonstrating your commitment and readiness to close the deal.
Here's the good news: Buyers with VA loans are the least likely to face foreclosure, according to the National Delinquency Survey conducted by the Mortgage Bankers Association. Unfortunately, not all agents and sellers are familiar with VA loans, so having the right professional on your side is essential.
How Do I Refinance a VA Loan?
A VA Interest Rate Reduction Refinance Loan (VA IRRRL), commonly called a VA Streamline Loan, allows existing VA loan holders to refinance for a lower interest rate, lower monthly payment or both. You also can switch from an adjustable-rate loan to a fixed-rate loan. You may apply for a VA Streamline Loan only if the new terms provide you with an immediate financial benefit like those listed here.
A Streamline Loan requires far less paperwork because you already have qualified for an existing VA loan. A home appraisal or inspection is not required. Because so many requirements are waived, the process is usually faster.
Keep in mind, however, that there will be closing costs, and that the VA requires a waiting period of either 210 days from the date of the first payment or after the sixth monthly payment (whichever's longer) before an existing VA loan can be eligible for an IRRRL.
Can I Use a VA Loan More Than Once?
There are no limits on the number of times a veteran can use VA loans to buy or refinance homes. However, there are some restrictions. Veterans can have only one VA loan at a time and are limited to buying or refinancing their primary residence.
What Are the VA Loan Limits?
In the past, the VA capped the amount of money available for a VA home loan. But as of 2020, the VA no longer mandates loan limits. That means you can buy the home you need through your VA home loan benefit.
Read More: What You Need to Know About VA Loan Credit Rules
What Fees Are Associated with a VA Loan?
Nearly every VA loan comes with a VA Funding Fee. This fee goes directly to the Department of Veterans Affairs and helps back the VA loans of the future. Not everyone has to pay the fee, such as military men and women with a service-related disability. Fees range from a little over 2% for first-time VA loan recipients, to 3.3% for repeat home buyers. The good news is you can roll this fee into your loan amount.
In addition, closing costs are less, and often the seller can pay these costs, too.
Learn more about VA home loan costs.
Can I Use a VA Loan for a Second Home or Investment Property?
VA loans are used to finance an owner-occupied home and are not available to finance investment property, a vacation or second home. But there are times when it’s okay not to occupy the property.
Just to give one example, what happens when you move into a property and later decide to buy yet another home, keeping the first property as a rental?
VA lenders understand this happens. Moving out doesn’t mean the loan is now considered to be covering an investment property. VA lenders approve loan applications based upon the intent of the borrower at the time of application and not what might happen in the future. If you buy and immediately rent it out, however, there might be a problem.
The VA establishes requirements that lenders must follow but there are also general guidelines that are left up to the interpretation of the lender. In addition, individual VA lenders may also have their own requirements in addition to what the VA issues. If you have questions about occupancy, talk to your VA lender.
Read More: Explaining the Occupancy Requirement on VA Loans
What Happens if I Default on a VA Loan?
Often, the loan servicer will be able to help resolve any default on the mortgage. However, if that’s not possible, the VA can step in. The VA has specialized loan technicians who are available in several regional loan centers across the country. They can provide assistance if a VA-guaranteed home loan becomes delinquent. Their main goal is to explore all options to avoid foreclosure.
Veterans with VA-guaranteed home loans can call (877) 827-3702 to reach the nearest specialists.
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