VA loans are the perfect solution for military families that want to achieve the dream of homeownership. Administered by the Department of Veterans Affairs, these government-backed loans are provided by private lenders, offering more affordable mortgages to those who have served our nation.
Today, we’ll explain the many VA loan benefits and guide you through the eligibility requirements for the VA loan program.
VA Loan Eligibility
The VA mortgage program is provided by the Department of Veterans Affairs. VA loans are guaranteed, meaning the federal government will reimburse a lender if the borrower defaults. For this reason, VA loans tend to have lower rates and looser approval requirements for VA loan eligibility.
However, not everyone is eligible for VA home loans. These VA guidelines can help you determine whether you can take advantage of this unique program.
For Active Military Members
Active duty service members who have served for at least 90 consecutive days of active duty during wartime become eligible for VA loans. If you joined the military during peacetime, you will need to serve for at least 181 consecutive days.
National Guard and reservists are also eligible, as long as they meet active duty requirements.
For Veterans
VA loan eligibility is slightly different for veterans. If you served between 1990 and the present day, you must have served for at least 90 days of active duty, or 24 consecutive months if you were not called to service. You must have also received an honorable discharge. If you received a less-than-honorable or dishonorable discharge, you will have to request a discharge upgrade from the Department of Veterans Affairs to qualify for VA benefits.
However, if you were discharged for hardship or a reduction in force, you can have served for less than 90 days. Those who were discharged before 90 days due to a service-connected disability may also be eligible.
Surviving spouses of veterans who died due to a service-related disability, are missing in action, or are held as prisoners of war, may also be eligible as long as they have not remarried prior to accessing a VA loan.
Benefits of VA Loans
A VA loan offers many advantages over a conventional mortgage, as VA loans typically have much looser requirements beyond the eligibility restrictions from the Department of Veterans Affairs.
Those with a VA loan entitlement can enjoy these excellent benefits when they seek out a mortgage.
No Down Payment Required
Because the government offers reimbursement if borrowers default, VA lenders don’t require a down payment. All you have to pay at the time of the sale are the closing costs and VA loan funding fee.
However, many borrowers pay at least some down payment amount to reduce their monthly payments and build home equity faster.
Competitive Interest Rates
VA loans typically have lower interest rates than other products, like conventional loans. Even an FHA loan, which is also backed by the government, may come with a higher interest rate than a VA loan.
In 2024, interest rates for conventional loans are sitting at around 6.87%, but VA loans have a rate of about 6.75%. This lower rate helps reduce your monthly mortgage payment, allowing you to build equity faster.
No Private Mortgage Insurance (PMI)
Conventional loans require private mortgage insurance if you put down less than 20%, which can significantly raise your monthly payment. FHA loans also require a monthly mortgage insurance premium, as well as an upfront MIP payment.
With a VA loan, you do not have to pay any form of private mortgage insurance. Instead, you will pay an upfront VA funding fee to the Department of Veterans Affairs. This funds the program and ensures the government can maintain an adequate VA loan volume to help other service members.
Flexible Credit and Income Requirements
The VA does not set a minimum credit score requirement. Instead, individual VA lenders decide what credit scores to accept from borrowers. Most lenders expect at least a 620, but some may be more flexible for borrowers who provide a down payment.
Similarly, the Department of Veterans Affairs doesn’t have a set debt-to-income ratio requirement. Many expect a DTI of 41% maximum, but some may expect higher percentages.
A VA Loan is a Reusable Benefit
There are technically no limits on how many times you can use a VA loan. As long as you have entitlement left and plan to use the home you’re purchasing as your primary residence, you can continue to use the VA loan program to purchase real estate.
Most borrowers can access full VA loan entitlement for their first mortgage, meaning they have full access to the loan program.
If you already have a VA loan, there will be a limit on how much you can borrow, but VA limits are very generous. In most counties across the US, you can borrow up to $766,550, but this may be as high as $1,149,825 in some high-cost areas.
VA Loans Are Assumable
Loan assumptions happen when an existing mortgage is transferred to a homebuyer. For example, this may happen if a homeowner decides to sell their home before paying off their mortgage. The remaining loan amount becomes the responsibility of the buyer, who makes the subsequent payments to the lender.
Thankfully, VA loans are assumable by any buyer, even if they would not qualify for a VA mortgage independently. Your buyer will get the same great rate, making it a great selling point for your home.
Convenient Refinancing Options
A VA loan makes it as easy as possible to refinance through the VA IRRRL program, which significantly reduces the amount of paperwork and underwriting necessary to switch out your rate.
Capped Lender Fees
To ensure every borrower can benefit from a VA loan, lender fees are capped at just 1% of the total loan amount. As fees for a conventional loan can be far higher than this, you’ll save thousands of dollars in fees alone when using this program.
Applying for a VA Home Loan
A VA loan has a slightly different application process than a conventional loan, due to government oversight.
When you work with Arnaiz Mortgage, we can help guide you through the process of getting approved for VA loans, from appraisal and underwriting to creating your Certificate of Eligibility.
Getting Your Certificate of Eligibility (COE)
The Certificate of Eligibility (COE) is a critical document for a VA loan, as it shows that you meet the VA requirements. It also tells the lender what loan amount you qualify for depending on your entitlement status.
The process of requesting COE varies depending on your active service member status and what type of service you completed. Veterans must provide their discharge or separation papers, as well as identification like a Social Security number, full name, and birth date. If you’re still serving, you must provide identification, your enlistment date, the duration of any lost time, and the name of the command that verifies your information.
National Guard members and Reserve members must provide evidence of their discharge and activation dates, such as their DD214, annual point statement, or DD220 with accompanying orders.
Surviving spouses of those who died due to service-related disabilities must also provide the veteran’s discharge papers. If the spouse is receiving Dependency & Indemnity Compensation, they must fill out the Request for Determination of Loan Guarantee Eligibility.
The Appraisal Process
As with other loans, a VA loan requires an appraisal, which ensures the purchase price matches the value of the home. However, a VA appraisal must be performed by a VA-approved appraiser who can ensure the property matches the requirements set by the VA. This differs from a home inspection, but it does ensure the home is habitable and safe for the buyer.
Some of the VA’s minimum property requirements include the following:
- The home must have adequate living space.
- The electricity and plumbing must be free of major defects.
- The home must have adequate heating.
- There must be accessible drinking water.
- The roof must be sound.
- The crawl space and/or basement must be waterproof.
- The home must have no termite infestations or lead paint.
- The home cannot contain serious environmental dangers like radon or asbestos.
Underwriting and Approval
Once your home has been appraised, a VA underwriter will ensure you and your home pose an acceptable level of risk for the lender. This process can take between three and six weeks. This typically involves a pre-approval phase, undertaken by the Automated Underwriting System, followed by a manual check by a VA underwriter after you sign a purchase contract with the seller.
Underwriting includes verifying income and financial information, the contract, and the appraisal. If you have an existing mortgage, underwriters will check that you’re not behind on your monthly payments, that there are no liens on the home you’re purchasing, and that your income and employment information have not changed.
The underwriting process can be extensive, requiring a lot of paperwork, but your loan officer can assist you in assembling everything you need. Once you’re fully approved, you’ll be ready to close on your home. This will involve paying the VA funding fee and lender fees, providing a down payment if you have chosen to do so, and signing all required documentation. Then, you’ll finally get the keys to your dream home.
Types of VA Loans
There are three main types of VA loans depending on your purchasing situation, all of which come with the same benefits. They’re government-backed and have great interest rates, helping reduce your monthly payment so that you can afford a beautiful home.
VA Purchase Loan
Most veterans know VA loans as the best way to buy property. These primary loans are to help you secure a new home and, like other mortgages, include a monthly mortgage payment.
Unlike an FHA loan or conventional loan, you don’t have to provide a down payment, and you won’t have ongoing private mortgage insurance. Instead, you will pay a one-time VA loan funding fee to help support the program.
It is possible to have multiple VA loans, and you can use your entitlement as many times as you choose. However, if this is your second time using the program, you may be subject to loan limits, which vary from $766,550 to $1,149,825, depending on the county.
VA Cash-Out Refinance
Just like with a conventional loan, VA loans allow you to tap into your equity through cash-out refinance.
To do this, you must close out your original loan and open a new one. The difference between your old mortgage amount and the current property value will be provided to you in a lump sum payment.
This is a great way to benefit from rising property values and finance your other life goals, whether that’s buying a second home or lowering credit card debt.
VA Interest Rate Reduction Refinance Loan (VA IRRRL)
Known as a streamline refinance, this mortgage option is exclusive to VA loans. Similar to a rate-and-term refinance used for conventional mortgages, IRRRL involves closing out an old loan and opening a new one with better terms.
An IRRRL is a great way to take advantage of lower interest rates and even change your loan term. With this option, you don’t need to undergo an appraisal or credit underwriting, meaning that you can qualify even if you have a lower credit score.
The laxer underwriting requirements mean that you can get approval for a VA IRRRL much faster than for a similar rate-and-term refinance for a conventional loan. However, you will still have to pay the VA funding fee and lender fees, just as you did when you opened the original home loan.
Is a VA Loan Right for You?
If you’re an eligible veteran or service member, a VA loan provides significant financial benefits over other loan programs, including higher limits, no down payment requirement, lower loan-related closing costs, and looser minimum credit score requirements.
Military members ready to use their VA loan benefits can receive assistance through every step of the home-buying process with Arnaiz Mortgage. We help you find mortgage lenders with the most advantageous rates, guiding you through the whole process and ensuring there are no delays.
Contact us today to learn more about how we can assist you in accessing VA financing.
Frequently Asked Questions
Are VA Loans Better Than Conventional?
Yes, a VA loan is a better option than a conventional loan for qualified veterans, as they have lower interest rates, no down payment requirement, and no private mortgage insurance.
VA loans are also available to those with lower credit scores or no credit history, acknowledging that military borrowers often have unique challenges when it comes to building up good credit.
Do I Have to Be a First-Time Homebuyer to Get a VA Loan?
No, the VA home loan program is available to any eligible borrower who has a remaining loan entitlement, even if they have previously opened a home loan.
It is also possible to have more than one existing VA loan, as long as you have fulfilled the residency requirement for the original VA home loan before opening the new mortgage.
This is more common for active duty service members who have to move, since they can rent out their first property while moving into the second.
Can I Use a VA Loan for Investment Property?
You are eligible for a VA mortgage on an investment property as long as it is also your primary residence.
Most borrowers buying rental properties with a VA-backed mortgage will buy a multi-unit property and live in one unit while renting out the others.
How Many Times Can You Use a VA Loan?
VA buyers can use their home loan benefit as many times as they like, as long as they still have remaining entitlement.
However, there will be limits on what VA borrowers can afford without making a down payment.
Can You Refinance a VA Loan?
Yes. In fact, there is a streamlined refinancing process that makes it easy to access the most competitive VA loan rates. The VA Interest Rate Reduction Refinance Loan (VA IRRRL) allows you to skip many of the hassles associated with refinancing conventional mortgages to lower your rate and access home equity.
As with conventional and FHA loans, you can also choose a cash-out refinance once you have built up significant home equity, which provides a lump sum payment you can put toward other needs, like a down payment for a second home or consolidating bills.