Marcus Marion, CMA™ Military members and veterans who are researching the VA loan program tend to have a lot of specific questions about how it works. And we’ve covered dozens of those questions right here on our blog.
Today, we will compile some of the most frequently asked questions (FAQs) relating to VA home loans, to give you a well-rounded understanding as to what it involves.
What Is a VA loan?
A VA loan is a type of government-backed mortgage for military members, veterans and some spouses. They are generated by banks and lenders within the private sector, the same as other types of loans. But VA loans also receive a guarantee from the federal government that reduces risk for lenders.
Who Is Eligible for a VA loan?
The VA loan program was created in the 1940s to help veterans returning from World War II establish homeownership. Today, the program is open to military members who are currently serving, veterans who have served in the past, and certain qualifying spouses.
Generally speaking, the following groups are eligible for a VA loan:
- Active-duty military who have served for at least 90 days
- National Guard and Reserve members who have completed at least six years of regular service or 90 days of active duty
- Surviving spouse of a military person who died in the service or due to a service-related disability
How Do I Apply for One?
The VA loan application process is nearly identical to the process that occurs with conventional loans, with a couple of small differences.
To begin the process, you’ll need to obtain your Certificate of Eligibility (COE) from the Department of Veterans Affairs. Next, you’ll want to find a lender that offers VA loans and submit a standard mortgage application.
You’ll have to provide a variety of financial documents as well, just as you would with a regular mortgage loan. Typical documents needed for a VA loan include bank statements, W-2 forms, tax returns, LES or pay stubs, and documents relating to any assets you hold.
What Benefits Does This Program Offer?
The most well-known benefit is the ability to buy a home with no down payment. But the VA loan program offers many other benefits as well. These include no mortgage insurance, flexible qualification criteria, and the ability to use the program over and over again throughout the years.
How Much Can I Borrow with a VA Loan?
The maximum loan size will largely depend on your gross monthly income.
When you apply for a VA loan, the lender will determine your debt-to-income ratio or DTI. Ideally, your total DTI ratio should not exceed 41% when taking on a VA loan. But exceptions can be made for otherwise well-qualified borrowers with compensating factors.
The best way to find out how much you can borrow is to get pre-approved through a lender that participates in the program. Pre-approval is a financial screening process that yields two important pieces of information: (1) whether or not you’re qualified for a VA loan, and (2) how much you can borrow.
But this is largely left up to the lender. As the Department of Veterans Affairs explains:
“The VA-backed home loan limit refers to the amount we’ll guarantee (the maximum amount we’ll pay to your lender if you default on your loan). We don’t limit how much you can borrow to finance a home.”
Do I Need to Make a Down Payment?
In most cases, the answer is no!
The VA loan program allows you to obtain a loan that’s large enough to cover the entire purchase price. Most borrowers who use this program do not have to make a down payment, unless they choose to do so.
Unfortunately, many eligible military members and veterans don’t realize they have this powerful benefit. Past surveys have shown that a lot of potential borrowers believe they have to make a down payment when using a VA loan.
You need to have sufficient income to manage your monthly loan payments, on top of your other recurring debts. And you’ll probably need to have enough money in the bank to cover your closing costs.
But you’re not required to make a down payment on your purchase with a VA loan.
What Are the Credit Score Requirements?
The VA does not establish an official minimum credit score requirement for VA loans. They leave that up to the mortgage lender. They also encourage lenders to look at the big picture when considering applicants, instead of focusing on individual factors like credit scores.
You should also know that VA loans have some of the most flexible and forgiving qualification requirements of any home loan program. There are two reasons for this.
For one thing, these loans are partially guaranteed by the government, reducing risk for participating lenders. Secondly, VA loan borrowers have a statistically low level of default and foreclosure. They’re generally strong borrowers and responsible homeowners.
Even so, a higher credit score can benefit you when applying for a VA loan. It could make it easier to get approved and also help you qualify for a lower interest rate. Credit scores are one of the main factors that determine the mortgage rate assigned to individual loans.
Can I Use a VA Loan More Than Once?
Yes, you can use the VA loan program more than once, as long as you continue to meet the basic eligibility requirements. This can be done through a process known as “restoration of entitlement.”
If you use a VA-backed mortgage to buy a house and later sell the house (completely paying off the loan in the process), you will restore your entitlement in the program. This means you could use another VA loan to buy another house, with all of the same benefits you enjoyed the first time around.
There is no limit as to how many times you can do this.
What Types of Properties Can I Purchase?
You can purchase almost any type of standard residential home with a VA loan. This includes single-family detached homes, approved condo units, new construction, some manufactured homes, and multi-unit properties like duplexes and triplexes.
The main caveat here is that the home must serve as your primary residence. In the case of multifamily properties, at least one of the units must serve as the borrower’s primary residence. The program is not designed to finance vacation homes or second homes.
Additionally, the property must meet the minimum property requirements for the VA loan program. These requirements mainly focus on basic health and safety issues, to ensure that the home is safe and habitable for the new occupant.
Generally speaking, a standard VA purchase loan cannot be used to buy a “fixer-upper” that needs serious work. The home has to be move-in ready at the time of closing.
Are There Any Additional Fees for Borrowers?
While VA loan borrowers can avoid the down payment and mortgage insurance, they do encounter a “funding fee.” The Department of Veterans Affairs uses these funds to help sustain the program, making it available to future generations of borrowers.
If you’re using this program for the first time, and with a down payment below 5%, you’ll probably have a funding fee of 2.15%. Making a down payment of 5% or more reduces your funding fee to 1.5%. Disabled veterans are often exempt from this requirement.
The good news is you have some flexibility here. The VA loan funding fee can be paid upfront (at closing) or rolled into the loan.
Can I Use a VA Loan to Refinance an Existing Mortgage?
Yes, you could use the VA loan program to refinance your existing mortgage loan, even if you currently have a conventional (non-VA) loan. Homeowners who are currently paying for private mortgage insurance could potentially refinance into a VA loan and eliminate their PMI, thereby reducing their housing costs.
How Long Does It Take to Close?
According to data compiled by the Department of Veterans Affairs, home buyers using VA loans can get from the application to the final closing in around 44 days on average.
This is comparable to the average processing and closing timeframe for conventional mortgage loans. So the idea that VA loans “take forever to close” doesn’t hold water.
Can I Get a VA Loan While I’m on Active Duty?
Yes, active-duty service members make excellent candidates for the VA loan program. They have a steady paycheck, job security, and often an additional housing allowance (BAH) that makes homeownership even more affordable.
You’ll probably need a letter from your command to verify your current service status. But you don’t need permission from your command to buy a home. The military and the VA both encourage responsible homeownership.
As mentioned above, active-duty service members in good standing are typically eligible for the VA loan program after just 90 days of continuous service.
Do I Have to Pay Mortgage Insurance?
No, the VA loan program does not require borrowers to pay for mortgage insurance. This benefit can reduce your monthly payments and overall housing costs.
Some of the other major mortgage programs do require some form of mortgage insurance. For example, the Federal Housing Administration (FHA) loan program requires all borrowers to pay mortgage insurance premiums.
And with a conventional loan, borrowers who make small down payments typically have to pay for private mortgage insurance, or PMI.
The VA loan program, on the other hand, is one of the only mortgage options that allows borrowers to finance the full purchase price without paying for additional insurance.
Have other questions? Our website offers a large library of VA loan tutorials and guides. If you have a question about this program that’s not answered above, you’ll probably find it elsewhere on the site. Use the search tool above to get started!
