VA Loans
Overview:
-
A VA loan is a special type of loan that military service members, veterans, and qualifying surviving spouses can use to buy a home or refinance their existing mortgage. These loans are backed by the U.S. Department of Veterans Affairs (VA) and offer several benefits, even if your credit score isn't perfect.
-
The VA works with private lenders to provide guarantees on VA loans. This guarantee allows lenders to offer loans with no down payment and less strict requirements compared to other types of loans.
-
There are different types of VA loans available for home purchase and refinancing. If you're unsure which type is right for you, it's best to consult with a Lender Avenger who can provide more information.
-
While the VA determines who qualifies for a VA loan, they don't directly issue the loans. VA loans are considered non-conforming loans because they don't follow the guidelines set by conventional lenders like Fannie Mae and Freddie Mac. However, this flexibility makes it easier for borrowers to qualify, thanks to lower credit score requirements. VA loans offer advantages such as lower interest rates, more lenient borrowing requirements, and no down payment at closing. Additionally, VA loans never require monthly mortgage insurance.
UNDERSTANDING THE DETAILS
Helpful Resources
Eligibility
To be eligible for a VA loan, you must meet certain criteria. These include serving a specific number of days in the military during peacetime or wartime, or serving in the National Guard or Reserves for a minimum period. Surviving spouses of service members who died in the line of duty or due to a service-connected disability may also qualify, with some additional requirements.
To prove your eligibility for a VA loan, you'll need a Certificate of Eligibility (COE) that demonstrates your qualification to your mortgage lender. The required documents vary depending on your status, such as being a veteran, an active-duty service member, a National Guard member, or a surviving spouse.
Things To Note
As a general rule the property you're purchasing with a VA loan must be your primary residence within 60 days of purchase although there are exceptions where a service member’s family may occupy the home before they do and still meet the occupancy requirement. VA loans can be used for various property types, including condos and manufactured homes, but not all lenders finance loans for these property types.
The VA doesn't set a specific minimum credit score requirement for VA loans. The credit requirement varies by lender, and some lenders, like UMortgage, have a minimum median credit score of 500 for a VA loan.
Your lender will evaluate your debt-to-income ratio (DTI) to assess your ability to repay the loan. The VA doesn't set limits on DTI, but individual lenders may have their own requirements based on factors like credit score and down payment or equity amount.
Limits & Advantages
There are no strict limits on the amount you can borrow with a VA loan, except in cases where the veteran currently has a VA loan on another home. However, loan limits often align with conventional loan limits, which currently start at $726,200 for most areas. High-cost areas may have higher limits. If you need a loan above the limit, you can consider a VA jumbo loan, which doesn't require a down payment and may offer a lower interest rate than regular jumbo loans.
One of the significant advantages of a VA loan is that it doesn't require a down payment. However, there are other costs involved, such as closing costs and a funding fee. The funding fee, ranging from 1.25% to 3.3% of the loan amount, helps cover costs and is typically rolled into the mortgage. Some veterans, surviving spouses, and disabled individuals may be exempt from paying the funding fee.
​
​Most loans also require borrowers to have reserve funds in the bank to ensure they can make mortgage payments. While not always required, it's generally a good idea to show reserves equal to two months' worth of mortgage payments.
In Conclusion
In conclusion, VA loans provide valuable benefits to military service members, veterans, and qualifying surviving spouses. These loans offer the opportunity to secure a low-cost mortgage with no down payment, lower interest rates, and more lenient credit requirements. If you meet the eligibility criteria, it's worth exploring VA loans to make homeownership more accessible.