VA Loans
VA Loans are no doubt the best home mortgage loan program in the nation. VA loans are limited to eligible active duty and retired members of the United States Armed Services with a VA certificate of eligibility. The Veterans Administration is the federal agency administering VA loans. The role of the VA is to insure private lenders who originate and fund VA loans in the event borrowers default and/or foreclose on their VA loans.
Due to the government guarantee, lenders are more than aggressively pursuing to compete for borrowers of VA-insured home loans. Lenders can offer VA loans with 100% financing no mortgage insurance and no maximum loan limit to eligible veterans. Mortgage rates on VA loans are very competitive. In the following sections of this guide, we will cover VA loans, the eligibility requirements, and how VA loans work.
Who are Veterans?
According to the Veterans Authority, a veteran is any person who has completed a service for any branch of the armed forces. This person could not have been dishonorably discharged. Although many veterans struggle financially, there are approximately 75% of veterans own homes.
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What is a VA Loan?
A VA loan is a mortgage loan issued by private lenders and partially guaranteed by the Department of Veteran Affairs. The VA does not issue loans but insures a portion of the loan in case of default. This makes the lenders more willing to offer lower interest rates, lower or no down payment, and lower or no closing costs.
The VA loan program was part of the Servicemen’s Readjustment Act (AKA GI Bill of Rights) that was created in 1944. It is intended for use by active service members, veterans, or their surviving spouses so that they can receive home financing with no down payments (90% of the time) . Although there is no down payment, there is often a funding fee and oftentimes disabled veterans can be exempt. There are VA home loans designed to help build a home, buy a home, or improve a current home. There are also refinancing options available.
How To Qualify for VA Loans
In order to qualify for a VA purchase loan, you should meet one of the qualifying guidelines. For individuals who are currently serving in the military or veterans who were honorably discharged, with more than 6 years of National Guard or reservist service, the service must include 90 consequential days of active service during a war or at least 181 consecutive days of active service during peace, or be a surviving spouse of a service member killed in the line of active duty. In order to qualify for a VA loan, you will need a VA COE (VA Certificate of Eligibility), meet the lender’s standards for credit and income, and live in the home you are buying.
Credit Score Requirements on VA Loans
The VA does not have credit score requirements, however, the lender that is supplying the loan will. Generally, lenders look for a credit score of 620 and higher. It is important to look for a lender that will work with a lower score if needed.
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Buying a Home With a VA Purchase Loan
This loan type will assist veterans with lower interest rates. This is because there is less risk for a lender as it is backed by the Department of Veterans Affairs. With this type of loan, you can also roll closing costs, including the down payment into the loan amount at which point you can make monthly payments. With this loan, a borrower can take out up to the Fannie Mae or Freddie Mac conforming loan limits.
Native American Direct Loan (NADL) Program
These loans are meant for Native American Veterans or a Veteran who is married to a Native American. If you are, the NADL program would help you improve a home, buy a home, or build a home on federal land. You only qualify for this loan if all of the following apply to you:
- A memorandum of understanding (MOU) must be done with the lender with your tribal government (the tribal government must be participating in the VA loan program) with details about how the program works on the trust lands
- You have to have a valid VA Certificate of Eligibility
- You will be living in the home you are using to buy, improve or build, and your credit and financial status meet guidelines.
With this loan, there is often no down payment, no need for private mortgage insurance, and limited closing costs, it’s a reusable benefit (meaning you can get more than one NADL in the future), and you can refinance a current NADL. If you have already requested your Certificate of Eligibility, you just need to contact the VA regional loan center for the state you are in to begin the process. Unlike the other VA loans, this loan type is a direct loan, in which the VA actually is the lender.
VA Energy Efficient Mortgage EEM
This loan can be added to any VA loan. The money for this loan must be used to make your home more energy efficient. Improvements that would fall into this category are updated windows, a new more efficient heating and cooling system, or even solar panels.
Interest Rate Reduction Refinance Loan (IRRRL)
The IRRRL might be for you if you already have a VA-backed home loan. This is a refinancing option for veterans. A person might want to lower the amount of your monthly payment with a lower interest rate or you can change your interest rates from adjustable to fixed or vice versa.
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VA Cash Out Refinance Loan
This loan assists veterans in taking cash out of their home equity or even refinancing a non-VA loan into a VA loan. This loan is helpful if a person needs to pay off schooling, home improvements, debt payments, or a number of other needs. The qualifications to receive this loan are the same as the other VA loans. You need to qualify for a VA-backed COE, meet the lenders’ credit and finance requirements, and live in the home you wish to refinance with.
How To Apply For VA Loans
First, you will need to apply for your Veterans Certificate of Eligibility for home loans. You can request a COE through your lender or via the mail. If you chose to request through the mail, you will need to download the VA Form 26-1880. You should get prequalified, although not required. In order to get prequalified, you should look for a lender that offers VA loans and find out how much you can afford. This will be based on your income, credit, and other financial aspects.
There is no difference between lenders that are approved by the VA vs. one that specializes in VA Loans. You will need to do some research and ensure you make a good decision. Getting pre-qualified also helps to give the buyer a heads up about any issues that need to be worked out such as issues with your credit or debt to income (DTI) ratio.
How To Get Pre-Approved For VA Loans
Get pre-approved. This is a pretty big part of the process. You will need to supply supporting documents such as pay stubs, W2s, and other financial documents to figure out how much loan you can afford. This is a huge step in the home buying process and makes it a much smoother ride when you find the home you want to purchase.
You should get a real estate agent. A real estate agent will act on your behalf when house hunting and be an advocate for you. It is also helpful to find a real estate agent who is familiar with the VA loan process.
Entering Into a Real Estate Purchase Contract
Once you find a home you love, you can put in your offer. After your offer has been accepted, there will need to be a VA appraisal of the property. This is not a home inspection, but rather the VA ensuring that the home meets the VA’s minimum property requirements. These minimum property requirements are also called MPRs.
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VA Guidelines on Property Standards
These are put in place to ensure that the Veteran and family will have the three S’s-a sanitary, safe, and structurally sound place to live. Some items on this checklist are: free of pests, including wood destroying insects, no lead-based paint, clean water supply with sanitary facilities, sufficient size for basic living, and working heating and cooling systems.
VA Home Appraisal
The VA appraiser is looking to ensure that properties follow the guidelines, but the guidelines can be open for some interpretation. For example, if the appraiser is looking for defective construction, it does not specify every type of defective construction or what would qualify as such. What to do if the home fails the MPR? The issues must be corrected before the loan closes. There are three options in this instance. The buyer can ask the seller to make repairs, the buyer pays for the repairs out of pocket, or the buyer can walk away and look for a new property.
Home Inspection versus Appraisal on VA Loans
The VA Home Inspection is different from the home appraisal and MPR. The VA home inspection is not a requirement of VA loans, but is best practice, just as it would be for any home buyer. This is a much more detailed look at the home than the appraisal. It is a way to get a heads up about any costly issues that are not on the surface of the home and not easily identifiable. This is protection for the buyer and the buyer can ask for issues to be corrected at the cost of the seller, allowing for the contract to be reopened.
Although many individuals have the notion that a VA loan is lengthy in the process compared to traditional loans, that is not always the case. A veteran or their spouse does have financing options available to them and oftentimes, help is just a click or call away
Frequently Asked Questions (FAQs)
Q: Who qualifies for a VA loan?
A: Eligibility typically extends to veterans who served actively without receiving a dishonorable discharge, active-duty service members with qualifying service periods, certain members of the Reserve and National Guard, as well as surviving spouse of deceased veterans, are also eligible.
Q: What are the benefits of a VA loan?
A: VA loans often require no down payment or private mortgage insurance (PMI), offer competitive interest rates, and have more lenient credit and qualification requirements than conventional loans.
Q: How do VA loan limits work?
A: VA loan limits cap the amount of money the VA will guarantee without requiring a down payment. The limits vary by location and are influenced by the maximum loan amount set by the Federal Housing Finance Agency.
Q: Can VA loans be used for any home?
A: VA loans can typically be used to purchase or refinance primary residences, including single-family homes, condominiums, townhouses, and certain multi-unit properties.
Q: What fees are associated with VA loans?
A: While VA loans have fewer upfront costs compared to conventional loans, borrowers may still face closing expenses, such as appraisal fees, origination fees, and additional charges. However, the VA limits some fees, and sellers can contribute toward the buyer’s closing costs.
Q: How do I apply for a VA loan?
A: To start the VA loan application process, qualified individuals need to acquire a Certificate of Eligibility (COE) from the VA and then collaborate with a lender approved by the VA to finalize their application.
Start your VA Loans with Gustan Cho Associates. Call us at 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
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