What is a VA Loan?
There are various down payment assistance programs for American veterans and their families who want to buy a home. Still, the VA Home Loan is often described as the most generous because it can help with 100 % financing—meaning there aren't any out-of-pocket expenses such as closing costs, which can cost up to 5 % of the total purchase price.
But what about everything else you want to know about this home loan? What are the eligibility requirements? How does it work? How do I apply for one? What will the bank or lender require from me?
What is a VA Home Loan?
The Department of Veterans Affairs (VA) Home Loan program provides qualifying American veterans with flexible financing options to purchase, build, or refinance a home. Every year, more than 30,000 veterans and service members use their VA entitlement to buy homes through the VA Home Loan program.
The VA also guarantees mortgages made by private lenders to facilitate homeownership for veterans who might not otherwise qualify for a conventional mortgage.
VA Home Loan Eligibility
In today's competitive housing market, homebuyers are turning to the U.S. Department of Veteran Affairs for assistance with their mortgage loans. The VA does offer a variety of mortgage products throughout the country. However, get your ducks in a row before starting the application process.
You must meet basic eligibility requirements to get a VA loan. Here's what you need to qualify:
You must be either the borrower or co-borrower — that is, the person signing for the mortgage with the Veteran;
You must have an Honorable discharge status;
You must have served at least 90 days aggregate service during wartime (see list below), OR at least 24 months total service if you were separated before Sept. 7, 1980;
You must not have been convicted by court-martial, and your civil rights must not have been forfeited; and
- You must not be delinquent in making child support payments or owe more than $2,000 due to a federal tax lien.
Surviving Spouses Qualify if They:
Are over the age of 18
Were married to the Veteran at the time of their death or must have been in a permanent relationship with the Veteran for at least one year;
Have an active duty spouse listed as a prisoner of war or missing in action;
Did not remarry until at or after the age of 57;
Owned with the Veteran any real property, including residences, farms, and business properties, for which they were listed as a co-owner on VA Form 26-1804, Certificate of Eligibility Based on Special Monthly Compensation;
- Are not currently serving under an enlistment or appointment contract dated later than the date their your spouse's death, except if they are serving under an extension of a current enlistment or appointment contract approved by VA.
If you meet these basic eligibility requirements, you will also need to meet specific conditions depending upon your military experience. See each category below for specific details.
VA Minimum Property Requirements
The use of a VA loan requires certain property characteristics, such as square footage or the number of bedrooms. You must also occupy the home as your primary residence and meet credit score requirements. The loan program applies to:
- Single-family homes
- Four-unit multi-family homes
- Manufactured homes
The loan doesn't cover vacation homes and investment properties.
VA Home Loan Benefits
These are the primary benefits of VA loans:
They don't require a down payment, and they offer low-interest rates.
They are available to many veterans whose incomes fall below a certain threshold. The VA also provides extra benefits to veterans who have disabilities due to their service.
In addition, the VA won't charge veterans prepayment penalties when they decide to sell their home or pay off the mortgage early. Veterans also are exempt from paying income taxes on the VA loan's interest payments and can deduct mortgage insurance premiums from their tax bills.
- The government will not foreclose on your property if you fall behind on your payments unless you have other debts that you are behind in paying, such as student loans or credit cards. If this is the case, then they can foreclose on those debts first and sell your home only after those debts are paid off.
The VA offers two different types of loans:
The VA streamline refinance - This allows you to get a lower interest rate and save money on your current home loan without any out-of-pocket expenses.
- The purchase money mortgage - This allows you to buy a new home without making a down payment or having to submit any financial information.
VA Home Loan Disadvantages
The main disadvantage of VA loans is that they limit the amount of money you can borrow to cover the purchase price of your home plus any associated closing costs. This means that if your home appraises for $200,000 and you need $40,000 to cover closing costs, you are limited to borrowing $160,000 from the VA.
Another disadvantage is that if you have bad credit and need a large sum of money to make repairs or improvements to your home before it is ready for sale or rental, the VA loan may not provide the funds because of its strict guidelines.
Also, it typically takes longer than a conventional loan. You can get a traditional home loan in as little as 30 days if you've already been pre-approved by the lender. It can take up to 6 months or more to get approved for a VA home loan, and even longer if you're in the process of buying a new home and haven't found one yet.
Before you can apply for a VA home loan, you need to obtain a Certificate of Eligibility from the Department of Veterans Affairs (VA). This document proves that you qualify for the Home Loan Benefit.
All other information about your eligibility will be pulled from your DD-214 or DD-215. You have to send in your original documents, so make sure they're clean, unaltered, and readable before sending them in for review.
How to Apply for a VA Home Loan
These are the basic steps in applying for a VA home loan:
- Get a certificate of eligibility
- Locate a lender who participates in the program and get preapproval
- Find the right home, submit an offer, and schedule an inspection
- Provide information regarding your income and expenses, employment history, etc.
Make sure you have all of this information handy before you begin filling out the paperwork so you can complete it quickly and move on to the next step.
VA Loan Income Requirements
In general, the VA requires that you have a minimum of 1.5 times the annual amount of the loan's interest rate as a qualifying income when applying for a VA loan. So if your monthly payment will be $1,000, then your annual income must be at least $18,000.
VA Loan Requirements: Loans $80,000 and above
VA Loan Requirements: Loans under $80,000
Eligibility rules are based on the Veteran's combined disability rating and the county. If a Veteran is eligible for 100 % disability compensation, then it does not matter their income because they will qualify for a full VA loan guaranty.
Getting Approved for a VA loan can be easier than you think, but it does take time to take all the necessary steps to get there.