What is a VA Loan?
A VA Loan is a type of home loan available to veterans and active service members and their spouses.
The Department of Veterans Affairs doesn’t actually loan you money. The VA simply backs your mortgage. That mortgage is originated by a private lender, i.e., a bank or a Mortgage Company!
The eligibility requirements for VA mortgages
There are a few requirements for VA mortgages. We will separate them into 2 simple groups — service qualifications and personal qualifications.
You can meet the military service qualifications in several ways. As long as one of the following applies, you can be eligible for a VA loan:
⦁ 90 consecutive days of active service during wartime.
⦁ 181 days of active service during peacetime.
⦁ 6 years of service in the National Guard or Reserves.
⦁ Your spouse died in the line of duty or because of a service-related disability.
If you meet one or more of the requirements above, you can obtain a Certificate of Eligibility (COE) for a VA loan. You don’t need to get the certificate before you apply for a loan, your lender will be able to request it for you.
Personal qualifications come down to your credit score and debt-to-income (DTI) ratio. These can vary from lender to lender.
Advantages of VA mortgages
The biggest advantage of a VA mortgage is its down payment requirements. Borrowers who qualify don’t have to put any money down. Borrowers, however, are responsible for paying any outstanding closing costs associated with their purchase should the Seller elect not to pay closing costs on the borrower’s behalf.
To make VA Loans more appealing, VA loans have no private mortgage insurance (PMI) requirements whatsoever. (For most Loan Products, homebuyers who put less than 20% down typically have to pay for mortgage insurance to protect their lender if the buyer can’t pay back the loan).
VA loans have easier qualification standards when it comes to credit history than other major loan types.
And finally, because VA Loans are guaranteed by the Department of Veterans Affairs and represent little risk of loss to lenders, VA loans generally have lower interest rates compared to other types of mortgages!
A couple of things you may need to know
VA loans have a “funding fee” that’s paid to the Department of Veterans Affairs. This fee is 2.15% of the purchase price of the home for first-time VA loan program participants and 3.3% for people who have used a VA loan previously.
The fee can be rolled into the loan, so it’s not a out-of-pocket expense. If you buy a home for $200,000, this would translate to a funding fee of $4,300, so your loan amount would translate to $204,300.
VA mortgages are usually only for primary residences. One of the main requirements for obtaining a VA loan is that you plan to live in the home. In other words, you typically can’t obtain a VA loan to buy a vacation home or investment property. However, there’s one big exception to this rule that’s worth mentioning. VA loans can be used to purchase a multifamily property with as many as four residential units if you plan to live in one of them.
What are the steps to Homeownership using your VA Loan?
The first step is to get preapproved with a lender that offers VA mortgages!! This involves filling out a mortgage application, verifying your military service, income, and employment, and agreeing to a credit check.
Next, we will go find a Home! VA loans can be used to purchase pretty much any type of residential home — single-family, (some) condos, new constructions, and even multifamily properties (up to four units).
Once we have a Home under contract, the underwriting process begins! Your lender will order an appraisal to assess the property’s value and condition, and the appraisal will need to show that the home is worth what you agreed to pay for it.
Be prepared to handle frequent information requests from your lender during the underwriting process, and try not to get frustrated if your lender asks you for seemingly trivial documentation several times — it’s a normal part of the process!
The bottom line on VA Mortgages
Overall, a VA mortgage loans can be the best way to buy a house if you qualify! You don’t necessarily need to put zero money down to take advantage of the low interest rates and lack of mortgage insurance, either.
If you’re a veteran or active member of the U.S. Armed Forces, a VA mortgage should definitely be on your list.