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The VA Loan is an optional, no-down payment mortgage for active military members, discharged veterans, and surviving spouses.
The program’s official name is the VA Guaranteed Home Loan and is commonly called by one of its shorthand names – the VA loan, the VA Mortgage, or the military mortgage.
Eligible home buyers get excellent interest rates backed by the U.S. government.
VA loans originated in the 1944 G.I. Bill, the landmark legislation that helped returning WWII service members buy homes, build roots, and strengthen U.S. communities.
More than 400,000 veterans use VA loans to buy a home each year.
Benefits of VA-backed mortgages include:
Also, VA loans can be of unlimited size. There is no concept of mortgage loan limits with VA-backed mortgages.
The Department of Veterans Affairs provides benefits and services to U.S. veterans, including a mortgage loan guaranty benefit to service members who buy and build homes.
Home buyers can use VA loans to buy single-family homes, condominiums, and multi-unit properties. Home buyers can choose from fixed-rate and adjustable-rate mortgages.
VA loans allow 100% financing. Home buyers can make an optional down payment with a VA-backed mortgage, but down payments aren’t required to be approved. The typical VA loan down payment is around 2 percent.
The VA Home Loan program makes homeownership accessible and affordable for military veterans. Unlike other government mortgage programs such as FHA and conventional mortgages, ongoing mortgage insurance payments are never required.
Mortgage lenders give VA mortgage rates below national averages because VA home loan benefits guarantee a portion of every loan against loss. VA mortgage rates can be as much as 0.25 percentage points below a comparable conforming 30-year fixed.
VA mortgage guidelines don’t enforce a minimum credit score requirement because VA loans don’t require credit scores. Mortgage lenders are instructed to evaluate applications from buyers with all credit types. Note that many lenders enforce a minimum credit score of 580.
The VA Home Loan program limits buyer closing costs to mortgage discount points and third-party costs such as government fees.
If the lender charges a service fee, it cannot charge for overhead items such as postage, notary, and loan settlement fees. Lenders cannot charge VA home buyers for attorney fees, real estate commissions, and third-party appraisals.
The VA Home Loan program is a lifetime benefit with no expiration or usage limitations. Eligible service members can use the VA loan benefits to buy their first home and subsequent homes in their lifetime.
VA-backed mortgages are assumable. They can be assigned to a future home buyer with the mortgage rate intact – even if that buyer is a non-Veteran. The buyer who assumes the VA home loan must meet standard VA credit and income qualifications and may be subject to a 0.5 percent fee on the remaining loan balance.
VA loan limits refer to the amount of money the Department of Veterans Affairs will guarantee on a mortgage loan. There is no VA loan limit for first-time home buyers and veterans with full VA entitlement. Buyers whose entitlement is less than full are subject to standard VA loan limits which mirror conforming mortgage loan limits.
VA home loan eligibility is split into two parts: service-based eligibility and mortgage-based eligibility.
Service-based eligibility includes active duty and retired personnel from all branches of the U.S. military:
National Guard and Reserves members meet service-based eligibility requirements, too.
Home buyers must provide a valid Certificate of Eligibility (COE) to get approved and meet the minimum service time standards required by the Department of Veterans Affairs.
Mortgage-based eligibility standards include:
Let’s review what it takes to get your VA mortgage approved.
A Certificate of Eligibility (COE) proves eligibility for a home buyer’s military service and VA home loan benefits. It’s a standard government document that buyers can retrieve online via the eBenefits website or mail.
A COE also shows whether buyers qualify for a mortgage funding fee discount.
Home buyers must meet one or more VA service requirements to qualify for the VA Home Loan program.
Spouses of service members who died while serving or from service-related disabilities may also be VA loan-eligible.
The VA makes service requirement exceptions for home buyers discharged from the military for specific reasons, including medical conditions or service-related disabilities, hardship, and a reduction of force.
VA home loans require home buyers to move into their homes within 60 days after closing and to make that home their principal residence. Exceptions are available for active duty service members and civilian borrowers working overseas.
Homes may not be used as rental properties.
Residual income is the amount of money left over after a buyer pays their major monthly expenses. Major monthly expenses include loan payments, credit card bills, child care, and utility costs. The VA requires that buyers meet residual income thresholds based on where they live, the size of their family, and how much money they’re borrowing.
Because the VA uses residual income to measure home affordability, the agency doesn’t use a debt-to-income (DTI) limitation within its guidelines. Instead, the Department of Veterans Affairs advises mortgage lenders to give extra scrutiny to buyers whose DTI exceeds 41 percent.
As a result, some mortgage lenders limit DTI on VA-backed mortgages to 41 percent. Other lenders, based on credit and financial profile, allow debt-to-income ratios over 50 percent or higher.
There is no minimum credit score required to use a VA-backed mortgage loan. However, because the VA instructs its mortgage lenders to make sound lending decisions, many companies enforce a minimum of 580 FICO. Learn more about how to fix your credit score.
According to mortgage software company ICE, the FICO of a typical VA home buyer is 723.
The VA requires homes backed by VA loans to be “safe, structurally sound, and sanitary” and certified via a professional home inspection.
VA-backed homes must also be free of workmanship defects and decay.
For families over five, add $80 for each additional family member
Family Size | Northeast | Midwest | South | West |
---|---|---|---|---|
1 | $450 | $441 | $441 | $491 |
2 | $755 | $738 | $738 | $823 |
3 | $909 | $889 | $889 | $990 |
4 | $1,025 | $1,003 | $1,003 | $1,117 |
5 | $1,062 | $1,039 | $1,039 | $1,158 |
Get pre-approved to verify your residual income requirements.
The VA Home Loan program guarantees mortgage loans of all types – purchase, refinance, and cash-out refinance. It also guarantees construction-related mortgages, so eligible service members can use VA loans to buy, build, or improve residential property.
VA loans can be used anywhere in the United States, its territories, and its possessions, including Puerto Rico, Guam, the Virgin Islands, American Samoa, and the Northern Mariana Islands.
VA purchase loans are mortgage loans used to purchase an owner-occupied home. Homes may be 1-4 units, attached or detached, and must meet VA minimum property requirements. No down payment is required, and neither are ongoing mortgage insurance payments.
The VA Interest Rate Reduction Loan (IRRRL) is a streamlined refinance program available to VA-backed homeowners. According to VA Home Loan guidelines, an IRRRL (pronounced “earl”) approval only checks payment history and payment savings. Appraisals, credit scores, and income verification aren’t required for an IRRRL mortgage approval.
The VA Cash Out Refinance program allows veterans to replace their current VA-backed loan with a new, larger one. The loan size difference is paid out in cash, which veterans can use for any purpose, including home improvement, paying off debt, and education costs.
According to VA mortgage guidelines, there is no VA Cash Out Refinance maximum loan-to-value (LTV). However, many lenders enforce a 90% LTV cash-out limitation.
The VA Native American Direct Loan is for veterans who are Native American, married to a Native American, and want to buy a home on federal trust land. The Department of Veterans Affairs issues NADL mortgages, and NADL interest rates can be as much as 1.5 percentage points below standard VA mortgage rates.
Buying a home with a VA loan is different from buying a home with conventional mortgage financing or with an FHA-insured mortgage.
The VA Home Loan program is more structured than its government-issued counterparts. VA loans ensure safety, soundness, and sanitation standards for every backed home, and program guidelines take a buyer-first attitude toward VA home affordability.
The Department of Veterans Affairs also maintains a public-facing website that describes how to buy a home with a VA-backed loan.
The process breaks down into ten steps.
The VA Home Loan program assigns a one-time, upfront closing cost to most loans, called a Funding Fee. Funding fees range up to 3.6 percent of the VA loan size. First-time home buyers pay a 2.3 percent funding fee.
Certain VA borrowers are exempt from paying funding fees, including Purple Heart recipients, veterans with service-related disabilities, and surviving spouses of service members who receive Dependency and Indemnity Compensation.
Funding fees decrease with larger down payments.
No, the Department of Veterans Affairs is not a mortgage lender. Home buyers can apply for a VA-backed mortgage with a VA-approved lender. Get started with Homebuyer.com here.
The VA Home Loan program is an optimal home loan for first-time home buyers because buyers can borrow as much money as their lender allows to buy a home.
No, home buyers cannot use marijuana-derived income to qualify for a VA loan. The Department of Veterans Affairs follows federal law, and marijuana is illegal on the federal level. Income from industries not prohibited at the federal level, such as the legal hemp industry, is allowed.
This article, "VA Loan: What Military Home Buyers Need To Know" draws on the author's professional mortgage experiences and references information found at these authoritative websites:
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The VA Loan is an optional, no-down payment mortgage for active military members, discharged veterans, and surviving spouses.
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