Unlike other types of mortgages, VA loans do not have a minimum credit score since they’re backed by the government. That said, lenders can set their own requirements.
Here’s what to know about VA loans.
The Department of Veteran Affairs does not issue the loans, neither does it set the loan limits, but it sets minimum requirements for one to qualify as a borrower and as a lender. Loan limits tend to be the same as those used by Fannie Mae and Freddie Mac mortgages. These limits are $548,250 or $822,375 in high-cost areas.
If you take a higher loan than the maximum limit, the VA will only provide a guarantee of up to 25% of the maximum limit. In this case, you may be required to pay a down payment in order to go beyond the limit. You will also be required to pay for private mortgage insurance.
Generally, all veterans taking a VA loan are required to pay a funding fee. This is a percentage of the loan amount which varies between 1.25% and 3.3% (2.3% to 3.6% starting January 2020) depending on the type of loan. It is usually lower for first-time home buyers and those who choose to make down payments.
However, if you don’t have the money, in most cases the funding fee is added to your loan amount to be paid later. This fee is not payable in case you’re entitled to receive compensation for service-related disability or if you’re a spouse of a veteran who died in service.
Qualifications for the VA Loans
Eligible parties in VA loans include:
- Active duty service members
- Reserve and active National Guard Members (called to active duty)
- Current Reserve and Guard Members (only eligible after six years of creditable service)
- Specified surviving spouses
In addition to these, veterans and service members must have been dismissed for conditions other than dishonorable acts. You must also meet the required length of service, at which point you’ll be issued with a certificate of eligibility. This minimum duration covers;
- 90 days of active service during wartime
- Less than 90 if you were discharged for service-connected disability
- 181 days of active service during peacetime
- Less than 181 if you were discharged for service-related disability
- 6 years of service for Reserve or National Guards or 90 days under title 32 with 30 days being continuous.
If you don’t have the minimum service requirement, you can still qualify for the VA loan under the following reasons.
- You have been discharged for hardship, or
- The convenience of government (after serving 20 months of a two-year enlistment), or
- Reduction in force, or
- Certain medical condition
You can only use the VA loan to finance one property at a time, which should be your primary residence. Your maximum debt-to-income ratio should be 41% unless your residual income can qualify depending on where you live.
Terms of Issue
Terms of issue are more lenient compared to other types of mortgages. Although terms of issue may vary depending on specific lenders, generally a VA loan has a maximum length of 30 years with no prepayment penalties. It also involves;
- A lower interest rate
- No down payment at closing
- No personal mortgage insurance
- Limited closing cost
Your lender will need to see certain documents to assist you in getting your certificate of eligibility. These documents include;
DD Form 214 to verify your military discharge in case you’re a veteran. If you don’t have it you can make an online request from Veteran Records.
Marriage certificate and death certificate if you’re a surviving spouse. If you don’t get dependency benefit you need to fill VA form 21P-534-ARE. But if you get dependency benefit, you need to fill VA form 26-1817
A statement of service, if you’re an active-duty service member or a current National Guard or Reserve Member.
- NGB form 22 and 23, Record of Service and Record of Separation for discharged members of the National Guard.
Why Choose VA loan
Most people who don’t qualify for a conventional loan can still qualify for a VA loan. This loan has lenient terms, making it way better than conventional loans. Therefore, it’s crucial for you to determine whether you qualify for this loan.
If you find it difficult to determine your eligibility for a VA loan, your mortgage lender will be able to help. You’ll be assisted to get your certificate of eligibility as well if you don’t have it.