(Jun 7, 2023)
The US government created the VA home loan in 1944 to ensure service members could get their homes without needing excellent credit or a down payment. This VA mortgage was beneficial after the Great Recession when most veterans experienced difficulty getting home refinancing.
Also, most lenders had stricter guidelines after the 2020 global pandemic. VA loans have offered surviving spouses, veterans, and service members a lifeline when they face high credit scores and down payment requirements.
Dedicated military persons have an easier time achieving home ownership with VA loans. This loan offers favorable home financing terms that appreciate service members' years. Most of the loan's benefits are not available with most common mortgages.
Mortgage companies and banks serve as lenders for these low-cost loans. Lenders provide favorable terms because the VA offers part of the loan's guarantee.
Remember that VA loans are only available for veterans purchasing their primary home. You won't receive approval if you intend to use the loan for a vacation or residential home.
In this loan guide, you will find the information you need to navigate your VA home loan and leverage this benefit in the best possible way.
Are you a Hometown Hero? Find out your eligibility for the Hometown Heroes Loan Program in Franklin County, Florida.
VA Loans Basics
VA loans are available to veterans with a promise: Veterans can access these loans with significant financial benefits, mainly the ability to buy a home with no down payment. Military families, service members, and Veterans have used this loan to hasten their goal of homeownership.
The VA backs these loans designed specifically for veterans and military members. VA loans ensure military families occupy their first homes while enjoying significant savings. The government-backed loans also don't require borrowers to pay the monthly Private Mortgage Insurance.
Market data also indicates that VA loans have the lowest average fixed interest rates. This trend has been ongoing for the past five years. The government created this loan to ensure more veterans and service members could own homes. With VA loans, veterans can access more flexible and forgiving credit guidelines.
Mortgage lenders offer incredible loan terms thanks to the support received from the VA. Should a borrower default, the government guarantee ensures that the lender won't get a total loss.
If you qualify for a VA loan, you can use it to:
- Build a new home
- Purchase a single-family home
- Buy and improve a home
- Add energy-efficient features to the home
Different Types of VA Loans
Below are different home financing options that VA loan offers to make your homeownership dream a reality:
Purchase Loans
With a purchase loan, veterans won't need private mortgage insurance or a downpayment. You won't pay any down payment if the sales price doesn't exceed the home's appraised value.
Purchase loans also guarantee better interest rates compared to other mortgages. Besides, you can request an amount within the Freddie Mac/Fannie Mae loan limits. Paying your loan early won't attract any penalty, and you'll also have fewer closing costs.
Cash Out Refinance
Cash Out Refinance loans are handy for veterans who are short of cash. These loans let you cash out of your home equity. You can use this cash to clear other debts, make home improvements, or fund your school activities.
Essentially, you'll replace your current loan with a new one on different terms. You'll be eligible for this loan if you:
- Qualify for a VA-backed loan
- Meet the VAs and your lender's requirements
- Plan to live in the home you're refinancing
Before settling for this loan, it is usually helpful to understand how the new loan amount will relate to the house's value.
Interest Rate Reduction Refinance Loan
Veterans could also opt to refinance an existing VA loan and get a lower interest rate. The IRRRL lets you move a loan with a variable interest rate to one that's fixed. Besides reducing your monthly income, this loan ensures more stability with loan repayment.
Who is eligible for an IRRRL? Eligibility requires you to:
- Have an existing VA-backed home loan
- Use the IRRRL to refinance your VA home loan
- Ascertain that you live in the home that the loan covers
VA Energy Efficient Mortgage
Veterans can borrow additional funds to make energy-efficient improvements to their homes. The VA Energy Efficient Mortgage offers up to $6,000 for your home improvement projects. You could use this loan as a refinance or with your home purchase loan.
Typical energy-efficient improvements include installing heat pumps, cooling systems, thermal windows, and solar heating solutions. However, the VA won't allow you to use this loan option for non-permanent additions.
VA Loan Eligibility
VA home loans are usually available for both veterans and active-duty military members. Members of the Reserve or National Guard might also qualify for the loan. Also, surviving spouses of military personnel are eligible for this low-cost mortgage.
Some essential requirements for qualifying for VA home loans include:
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Completing 90 consecutive service days during wartime
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Serving 181 active service days during peacetime
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Serving six years in the Reserves or National Guard
- Be a spouse of a service member who passed away while on duty or due to a service-related disability
Some Veterans still qualify for the VA loan even without meeting these basic service requirements. In such instances, eligibility usually depends on your discharge type. You might still be eligible if:
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Your discharge occurred due to a hardship
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The government discharged you at its convenience
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Your discharge arose from a reduction in force
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The government discharged you for a service-connected disability
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A medical condition contributed to your discharge
- You served no less than 21 months of a 2-year enlistment before your discharge
A VA-approved lender can always help you understand your eligibility status. Other typical qualifications include a good credit score, reliable income, and a Certificate of Eligibility (COE).
If you fall into any of these requirements, you'll need to request a COE that shows your lender that you are eligible for the loan.
Requesting for a Certificate of Eligibility
Before requesting your COE, you need to gather all the relevant information. If you're a veteran, you'll need a copy of separation or discharge members. On the other hand, active service members might need to provide a statement of service. This statement should indicate:
- The veteran's complete name
- A social security number
- Date of birth
- Duration of lost time
- Name of the command
Activated national guard or reserver members must provide a copy of their DD214 or other discharge documents.
You can request the COE online via the eBenefits platform. Alternatively, you can ask your lender to use the Web LGY system and get the COE. If you are not in a hurry, you could request the COE via mail. In this case, you'll need to fill out the Request for a Certificate of Eligibility.
VA Loan Application
Here's what you need to know about applying for a VA home loan.
Loan pre-approval
To get pre-approved for a VA loan, you'll need to provide various documents, including:
- Previous two years of W2s
- 60 days bank statements
- 30 days paystubs
- Landlord contact information
Find a home
Work with real estate agents to find a suitable home in Franklin County. Ensure that you also inspect these homes for termite infestations. If applicable, you could request reasonably or septic inspections.
Home Appraisal
Find a VA-certified appraiser in Franklin County, then schedule the appraisal process. The appraiser will estimate your preferred home's market value during the inspection. The lender will review the appraisal alongside your credit and income information before approving your loan.
Once you get loan approval, the lender will partner with you in finding a suitable company to close or transfer ownership of the house.
Finalize the Application
Provide all the necessary paperwork to enable your lender complete the application process. Most lenders will request W-2s, tax returns, and additional financial information.
VA Loan Limits
As of 2020, any veteran with a full entitlement had no VA loan limits. Essentially, the VA guarantees they'll pay up to 25% of the loan amount if a qualified veteran defaults on their loan.
Full entitlements are available for veterans who:
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Have never used their home loan benefit
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Completed their previous loan and sold the property
- Used a previous loan but had a foreclosure and completed their loan payment
Besides the full entitlement, you could also leverage additional bonuses and tier 2 entitlements. If your COE indicates that your basic entitlement is $0, this means that you have remaining entitlement and can reuse your VA loan.
Can you get as much loan as you desire with no loan limit? Not necessarily. Different factors will determine how much loan your lender will approve. First, you'll need to get a Certificate of Eligibility (COE) that indicates you are eligible for the VA home loan.
Your lender will then assess various factors before determining the loan size you can afford. Top requirements include:
- Your credit history
- Streams of income
- Assets including your investment accounts and savings
Compare various lenders' credit score requirements to find a suitable lender.
When do Loan Limits Come into Effect?
If a veteran has remaining entitlement, they will have a loan limit on their VA loans. In such circumstances, the loan limit will depend on your county's limits. If you default on the loan, the VA will pay 25% of the county's limit minus your earlier entitlement.
However, the remaining entitlement allows you to take another VA home loan. The remaining entitlement is available for anyone who:
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Has an active VA loan that they're still paying for
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Completed a previous loan and still owns the home
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Refinanced an existing VA loan into a non-VA loan
- Had a foreclosure on previous VA loans and didn't complete the payments
Can you Use VA Loans More than Once?
VA loans are lifetime benefits that let you use the guaranty more than once. You can have more than one active VA home loan simultaneously.
This benefit means you won't have to complete your VA loan benefits before applying for the following loan. Essentially, you can use the VA loan benefit over and over again.
VA Funding Fee
Most mortgages require borrowers to pay the Private Mortgage Insurance (PMI) throughout the loan's life. PMI is a requirement for conventional loans, especially when your down payment is less than 20%. Typically, lenders rely on PMI for protection when borrowers fail to pay their mortgages.
However, you won't have to make monthly insurance payments for VA loans. Instead, you must pay the VA funding fee. This one-time fee lowers the cost of the loan for US taxpayers. The VA requires lenders to pay this fee when you close the VA-backed loan.
The total payable amount depends on your loan type and total loan amount. Some borrowers include the funding fee in their loan and pay it off over time. However, you could opt to pay it in full during closing. Also, your down payment amount can influence the total VA funding fee.
In other instances, the funding fee might depend on whether you're using the loan the first time or a subsequent time. Discussing your loan costs with your lender is always good practice.
Some veterans can get exempted from paying the VA funding fee if they meet specific criteria. You won't pay this amount if you're:
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Getting VA compensation for service-related disabilities
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Eligible for VA compensation but are receiving active duty or retirement pay
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A surviving spouse of a Veteran who died during service
- An active duty service member with the Purple Heart
If you start receiving compensation for a service-connected disability, you might be eligible for a refund of this fee.
Other VA Loan Costs
Your lender will determine the loan's interest rates, discount points, and closing costs. Different lenders will have different rates. The funding fee and additional closing costs could sometimes reduce the refinancing benefit.
To reduce these amounts, the seller pays part of the closing costs, including brokerage fees, buyer broker fees, and termite reports. However, you could still negotiate with them to pay other closing costs, like:
- The loan origination fee
- VA appraisal fee
- Recording fee
- State and local tases
- Title insurance
Benefits of a VA Loan
VA home loans offer the unique benefit of requiring no down payment. Also, you won't need to pay monthly mortgage insurance. These top benefits eliminate significant obstacles to homebuying for veterans. Besides, borrowers will also get their dream home quicker.
You don't have to worry about saving up a down payment for your home. With the VA home loan, Veterans don't have to spend years saving to find the down payment associated with other mortgages. This no-money-down benefit ensures that more veterans get to own new homes.
Unlike conventional loans, you can make lump sum or extra house payments with no pre-payment penalty. Besides, you can consider refinancing options without any penalty.
Lenders have less risk with VA home loans, offering incredibly low-interest rates. Lower rates ensure you save every month and throughout the loan's life. Also, you can still negotiate the rates.
VA loans also offer significant savings on closing costs. Sellers will typically cover different charges, including insurance, paying off collections, and prepaid taxes. During negotiations, you could ask the home's seller to pay part of these payments.
Make the most of VA assistance programs that can bail you out if you experience challenges.
Exciting Things to do in Franklin County, Florida
Franklin County guarantees incredible experiences for residents and visitors. Top activities in the area include:
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Visiting the Energy Park - Enjoy lots of fun with family and friends in this park. Find time for a relaxing stroll through the shrubs and trees.
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Touring the Turner Falls - The ambiance of this place will enchant you and guarantee countless memories. Explore the great outdoors as you interact closely with nature.
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Exploring the French King Bridge - Does architecture impress you? Make your way to this bridge and take in its impressive modern designs.
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Exploring the Berkshire East Ski Resort - Visit the Berkshire East Ski Resort and have fun along the slopes in Charlemont. Discover the area's waterfalls as you make your way through the forest.
- Paddling on Philpott Lake - Enjoy some alone time at Philpott Lake. The unspoiled wilderness and undeveloped shorelines deliver calming experiences to visitors. For additional peace, be sure to explore the paddle-in campsites.
Sign up for your VA home loan
Ultimately, VA home loans are invaluable for any Veteran keen on owning a home. The loans' multiple financial benefits and relaxed credit requirements guarantee a less-stressful home-owning process.
Consider signing up for these loans to achieve your goal of buying your dream home.
(Jun 7, 2023)
