(Mar 25, 2023)
Unlike what other mortgage programs demand, you won’t have to put a lump sum down or pay mortgage insurance. The loan also boasts flexible credit and income requirements, making it easier for you to get qualified.
The VA home loan is a product of the US Department of Veteran Affairs, which partially backs the loan. Though it has government backing, you still must meet lenders’ requirements to qualify. As you plan to finance a residential property with a VA loan in Escambia County, FL, here’s how to get started:
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Escambia County, Florida.
What is VA Loan
The VA home loan is a government-backed mortgage enabling veterans and active-duty service members to afford homes since 1944. Its marketable feature is the zero down payment requirement. You can get the mortgage through VA-approved mortgage companies and banks.
Unlike other home loans, VA loans don’t require excellent credit or medium income to qualify. Provided you are eligible; the loan can help you buy or refinance a residential property. You also get to enjoy lifetime benefits while repaying the loan and a chance to take a subsequent loan.
Different Types of VA Loans
VA home loans are usually designed to serve various purposes, making them ideal for different situations. You can get one to purchase a home, refinance your current VA home loan or make energy-efficient improvements on a property. The common types of VA loans are as follows:
VA Purchase Loan
Financing a new or existing home purchase is easier with a VA purchase loan. You can use the loan to finance a manufactured home, condominium, single-family home, or multi-unit property. Once you get approved, your lender will offer you a mortgage with relaxed credit requirements and no down payment.
VA Cash-Out Refinance
A VA cash-out refinance, you refinance a loan not backed by the VA into a VA-backed one or take cash out of your home’s equity. With this refinance option, there are no restrictions on how and where you’ll spend the money. You can use it to carry a much-needed home improvement, go on a vacation or make a large purchase.
The cash-out refinance loan can suit you if you want to trade your home equity for cash. However, the borrowing and loan-to-value requirements vary with the lender.
VA IRRRL
With a VA IRRRL (Interest Rate Reduction Refinance Loan), you can refinance your existing VA loan and enjoy a lower rate. Since the IRRRL doesn’t limit how long it takes to recoup the costs and fees, it gives full financing benefits.
As a simple and low-cost VA-backed refinance loan, the IRRRL requires little to no appraisal. Income verification and credit underwriting are also part of the loan process.
VA Energy Efficient Mortgage
Carrying out energy-efficient improvements on a home financed by a VA loan is easy with the VA energy-efficient mortgage. It affords you an extra $6,000 that you can spend on VA-approved energy-saving improvements. These improvements may include the installation of solar heating or cooling systems, heat pumps, and storm/thermal windows.
Who is Eligible for a VA Home Loan?
Like other mortgage programs, VA loans have specific eligibility requirements that veterans, active-duty service members, and their surviving spouses should meet. At the initial stages of the loan process, you must submit a Certificate of Eligibility, which, as its name suggests, can help prove your eligibility for a VA loan.
You also need to satisfy the lender’s credit and income requirements. The minimum service requirements for this home loan include:
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181-day active service during peacetime
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90-day active service at the war
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At least a 6-year service in the Reserves or National Guard
- Be a surviving spouse of a service member who perished while on duty or due to a disability related to their service
The minimum service requirements for veterans largely depend on the discharge type. As a veteran, you should have been discharged from service under the following conditions to qualify for a VA loan:
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An early-out discharge after serving for 12 months in your 2-year enlistment
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Discharged due to a medical condition or disability related to the service
- Reduction in force, government convenience, or hardship discharge
Obtaining a COE (Certificate of Eligibility)
VA-approved lenders use the COE to verify whether you meet the minimum service requirements. The COE can help gauge whether you qualify to be considered for VA loan benefits.
A lender can use your Social Security number and date of birth to generate a COE. You can also fill out a COE form on the VA eBenefits portal or fill out VA Form 26-1880 and submit it to the VA to get the document.
Lender Requirements for VA Loans
Your chances of getting considered for a VA loan depend on how best you meet the lender’s requirements. Depending on the lender, you must have a reliable income, acceptable debt levels, and a suitable credit score before applying for the loan.
While the US Department of Veteran Affairs backs the loan, it allows lenders to set their minimum credit requirements. The standard credit score needed to get a VA home loan is 620.
Your lender will review your income and savings to ensure you have enough cash to cater to the monthly loan payments. They do this by subtracting necessary expenses such as food, transportation, and medical care from your income to calculate your remaining income.
Besides credit score and income, lenders pay close attention to borrowers’ debt-to-income ratio. DTI ratio indicates the percentage of your gross monthly income used to cover monthly debt obligations. It helps lenders assess your borrowing risk since a low DTI indicates a good balance between income and debt.
Steps for Applying for a VA Home Loan
VA-approved lenders require you to follow a specific process before disbursing the loan. While the loan process may take up to 45 days to complete, you aren’t limited to one lender. Either way, you have to go through the following steps as you look to finance a home with a VA loan:
Apply for a COE (Certificate of Eligibility)
A COE is used to prove your eligibility for the VA loan benefit. Your lender can get one for you, or you can download one online and fill it out as required.
Review Your Finances
Reviewing your finances will help determine whether you can afford to make monthly VA mortgage payments. You need a broader outlook of your income, expenses, credit profile, and budget. The review can help you determine the maximum loan amount to take without overstretching your finances.
Choose a Reliable Lender
Choosing a VA-approved lender can be pretty daunting for a first-timer if you don’t know where it looks. Consider private lenders such as mortgage companies, private banks, and credit unions in your search for one. Also, shop for a suitable mortgage (with competitive interest fees and rates) to help you reach your homeownership goals.
Note that mortgage lenders charge loan origination fees capped on average at 1 percent. They may also ask for additional fees for loan processing that you need to be aware of.
Enlist the Services of a Proficient Real Estate Agent
Navigating the VA loan process can be challenging without a real estate agent’s help. The agent will help you choose a home that meets VA’s property guidelines and suits your budget.
Review the contract before enlisting the services of a real estate agent. Also, ensure that their services have your best interests at heart.
Shop for a Home and Close the Loan
A real estate agent can help you shop for an affordable home and negotiate with the seller. Once your offer is received and accepted by the seller, you can present it to the VA-approved lender and wait for funding.
Are There Any Limits on VA Loans?
VA loans come with various limits that reflect the maximum amount the US Department of Veterans Affairs can guarantee on a loan. You can only take the mortgage provided you are within your VA loan entitlement.
With a full VA loan entitlement, you’ll be eligible for a loan amount that goes as far as the lender can. However, various loan limits will apply if you have a reduced VA loan entitlement. To enjoy the full entitlement, you need to satisfy the following requirements:
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You are a first-timer in the VA loan market
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You repaid your past VA loan in full or sold the property (in this case, the lender will restore your full VA entitlement)
- You repaid the previous loan in full despite encountering a foreclosure or a compromise claim
The VA Funding Fee Explained
Have you ever wondered how the VA guarantees VA loans without requiring lenders to set down payments and mortgage insurance requirements? The VA instituted the VA Funding Fee to ease the burden of VA home loans on taxpayers.
The VA Funding Fee is charged on VA loans used to buy, build, improve or repair residential properties. It is also a requirement on VA refinance loans. The VA may exempt you from paying this funding fee if you are:
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A recipient of retirement or active-duty pay, but you qualify for compensation for a disability related to your service
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A recipient of compensation for a disability related to your service
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A DIC (Dependency and Indemnity Compensation) recipient as a spouse to a service member or veteran who passed on due to a service-linked disability or while in service
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A service member who attained a proposed or memorandum rating proved before the closing date, but you qualify for compensation due to a pre-discharge claim
- An active-duty service member who receives Purple Heart benefits and proves these benefits before the loan closing date
The VA allows you to pay the funding fee at closing, including your monthly loan payments. Expect the fee to vary with the type of VA mortgage and loan amount. It may also depend on your first-time homebuyer status and down payment amount.
Advantages of a VA Loan
One of the reasons VA loans stay unmatched compared to other home loans is that they offer borrowers plenty of benefits. They are an excellent mortgage option if you want to finance a residential property without making a down payment or paying mortgage insurance. Once approved for the loan, here are some of the perks you get to enjoy:
No Down Payment
Raising a down payment has to be one of the challenges most borrowers face when applying for home loans. But with a VA home loan, you won’t have to worry about saving for a down payment. The mortgage lets you save money, build credit and enjoy 100 percent financing.
Relaxed Credit Requirements
Conventional mortgage lenders set strict credit requirements on their loans to discourage low-income borrowers. With the relaxed credit requirements on VA loans, you can apply for a VA mortgage with a credit score of 620 and above. The credit score cutoffs vary with the lender.
No Private Mortgage Insurance
While most zero-down home loans require mortgage insurance, VA loans don’t. In turn, the VA loan costs will be lower than other loans that charge mortgage insurance premiums.
Reasonable Interest Rates
A VA loan lets you enjoy reasonable fixed rates, which can help you save money throughout the loan. Most lenders charge a fixed rate of 0.5 to 1 percent on a 30-year VA loan.
Lifetime Benefit
One most appealing benefit of a VA home loan is the lifetime benefit, which doesn’t impose a limit on the number of times to use the loan. You can take more than one loan simultaneously and use your VA benefit without having to clear a pending loan payment.
5 Things a Veteran Can Do in Escambia County, Florida
As the oldest and westernmost county in Florida, Escambia County boasts many popular attractions that make it worth a visit. As a veteran who plans to live or lives in Escambia County, Florida, here are five of the best fun outdoor activities to engage in:
Take Your Watersport Enthusiasm to Key Sailing
Essential Sailing is the perfect spot for an adventurous yet relaxing vacation. Situated at the heart of Pensacola Beach, Key Sailing remains a highly-sought facility for kayaks, parasailing, Hobie sailing, and paddle boarding. It also features plenty of pontoon boat rentals and Seadoo.
Deep-Sea Fishing at Reel Eazy Charters
Reel Eazy Charters offers thrilling deep sea fishing experiences. The Reel Eazy comes equipped with an air-conditioned cabin, a huge fishing deck, and satellite TV to improve your charter fishing activities. It was built for exceptional rough water handling, speed, and stability and can be found on Pensacola Beach.
Hiking at the Naval Live Oaks Reservation
As its name suggests, the Naval Live Oaks Reservation was the first and only tree farm built to reserve valuable live oaks in the 1800s. Its highlight is a seven-and-a-half-mile hiking trail. Besides hiking, the Naval Live Oaks Reservation is also suited for water-based recreational activities and picnicking.
Bird watching at Big Lagoon State Park
The Big Lagoon State Park boasts plenty of pine Flatwoods and saltwater tidal marshes that attract a wide variety of birds. It is the perfect getaway for bird watching, paddling, hiking, camping, fishing, boating, and swimming.
Immerse Yourself in Art at the Graffiti Bridge
The Graffiti Bridge was initially constructed in 1888 to accommodate passing railway cars. As one of the most-renowned landmarks in Pensacola, the Graffiti Bridge features several years of decor and paintings. You can visit the bridge to see new additions of paintings or even paint your name, motivational sayings, or anything across the bridge.
Summing up
VA loans can offer you some relief if you’re a veteran, service member, or surviving spouse of a service member who finds it hard to navigate the high-priced mortgage market. The good thing is that you won’t have to put a lump sum down or pay mortgage insurance when taking the loan. Best of luck as you use a VA home loan to finance a residential property of your choice.
(Mar 25, 2023)
