What is a VA loan?
VA loans are for mortgages guaranteed by the U.S. Veterans Affairs Administration (VA), particularly for eligible active duty veterans, veterans and surviving spouses. If you are eligible, you can use the VA loan program to buy a home, build or renovate a home, or refinance an existing loan.
How do VA loans work?
VA does not provide VA loans directly to borrowers. Instead, you can get a loan through a VA-approved mortgage lender. Many national banks offer VA loans, and some lenders specialize in them.
Like traditional loans, VA loans usually have 10-30 years – fixed or adjustable rates.
In most cases, you don’t need to create a down payment to get a VA loan, and you won’t even pay for your mortgage insurance. This is the important difference between VA loans, traditional loans and FHA loans. However, we are responsible for some upfront costs.
VA loan fees
VA loans, like other types of mortgages, have closure fees. In addition to origination fees and evaluation fees, we also charge VA funding fees. This offsets the risks for lenders when offering a no-payment mortgage.
Funding fees range from 0.5% to 3.3% of the loan amount and apply to purchase or refinance. For purchase loans, the cost:
| down payment | First time using | Subsequent use |
|---|---|---|
| 0%-5% | 2.15% | 3.30% |
| 5%-9.99% | 1.50% | 1.50% |
| Over 10% | 1.25% | 1.25% |
There are certain circumstances where borrowers do not have to pay the funds. Primarily, if you receive or qualify for compensation for any disability caused by injuries sustained during service.
If you wish to pay a funding fee when it closes, you can add it to your loan and pay it over time with your mortgage. This increases the total amount you are borrowing and the total interest paid.
Current VA loan fees
VA loan fees are usually competitive with traditional loan fees, but can be slightly higher or lower. For example, the national average rate for 30-year VA loans is currently 7.08%, while the national average rate for traditional 30-year loans is 6.88%.
VA Loan Eligibility and Requirements
To qualify for a VA loan, you must meet minimum service requirements. These differ based on your status as an active duty or veteran. National Guards or Reserve Members also have certain requirements. If your spouse serves you may be eligible too.
Before applying for a VA loan, you will need a certificate of eligibility or COE certifying that you have met the service requirements to qualify for the loan.
Other VA loan requirements
Like other mortgages, VA loans have financial requirements, but are often more flexible than traditional loan loans.
- Minimum credit score: VAs do not set minimum credit scores for borrowers, but many lenders require a score of at least 620.
- Maximum Debt Revenue (DTI) Ratio: Borrowers usually have to have a DTI ratio of 41% or less to qualify for a VA loan, but may be approved with more debt if they have a higher savings, lower tax burden, or meet other special circumstances.
Finally, you can only use VA loans with major residences. Investment property and vacation homes are not permitted. The property must also meet certain safety and structural standards.
VA loan restrictions
There is no limit to the size of your VA loan if you are fully qualified. However, lenders still value what they qualify based on their finances, such as income and other liabilities. Your qualification is also fixed in compliance with loan restrictions.
If one or more of the following applies, you are not fully qualified:
- You still have an active VA loan that you are paying back.
- You fully pay your previous VA loan and still own the home.
- I refinance my VA loan into a non-VA loan and still own the home.
- You have experienced short sales, foreclosure or foreclosure on your previous VA loan, but you have not fully repaid it.
In these cases, you are limited to borrowing as much as your county’s loan limit.
Types of VA Home Loans
Whether you’re buying a home, building a home or refinancing a mortgage, there are a variety of VA loan options.
| VA purchase mortgage | To buy a house |
| VA Construction Loan | To build a house, such as purchasing land, lots, labor, and materials. |
|
Refinance interest rate reduction refinance loans (IRRRL) or VA |
No valuation or credit checks are required to refinance into a new loan with new interest rates and/or terms |
| Refinance VA rates and periods | For refinancing to a new loan at new interest rates and/or terms |
| Refinance VA Cash Out | When taking cash based on the capital of your home, for refinancing to a new large loan with new interest rates and/or terms |
| VA Rehabilitation/Renovation Loan | To buy and modify the house |
| Native American Direct Loan (NADL) | Native American veterans buy, build, or modify a home in federal trustland (or refinance a home mortgage) |
Pros and cons of VA Home Loans
For those who are eligible, VA loans have many advantages, but there are also drawbacks to consider.
The advantages of VA loans
- No down payment: With a VA loan, you can purchase a home with zero down payment. In contrast, traditional mortgages should reduce at least 3%, while FHA loans should decrease at least 3.5%.
- No mortgage insurance: Unlike traditional loans and FHA loans, VA loans do not require you to pay mortgage insurance, even if you don’t have a down payment.
- Limited lender fee: VAs limit certain lender fees. This may mean low Closure costs Compared to other loan types.
Cons of VA loans
- Funding Fees: A VA loan depends on whether you are purchasing a home, refinancing, paying a down payment, and how much you spend.
- Limited to major residences: You can use a VA loan to buy a major residence rather than a rental or a villa. However, as long as one unit is the main residence, you can purchase four-unit properties with a VA loan.
Is a VA loan perfect for you?
Even if the service qualifies for a VA loan, you may still choose to use a different loan type. For example, if you can afford to lower your traditional loan by 20%, you may be paying less than if you opted for a VA loan.
However, a VA loan may be the best option for you.
- You will have a hard time qualifying for a traditional loan. VA loans are more generous than traditional loans.
- You live in a high cost area. You can use VA loans to buy more expensive properties than fitted with loan restrictions, potentially without a down payment.
- You are planning to live in your home in the long term. Because of prepayment, if you plan to live in only a few years, it may not be worth buying a home with a VA loan.
How to apply for a VA loan
The process of applying for a VA loan is similar to the process of applying for another type of mortgage. This includes comparing offers from lenders, providing evidence of employment and income, and responding quickly to underwriting requests. The basic steps for a VA purchase mortgage are as follows:
- Get your co.
- Organize files of financial information, including recent pay stubs, bank and securities statements, and tax returns.
- Compare rate offers from at least three VA lenders.
- Request before approval and start searching for a home.
- If you have accepted an offer, you will complete your mortgage application.
- Be prepared to provide additional credit or financial information as needed during underwriting.
