Beginners Guide to VA Home Loans

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Welcome Home Soldier

VA loans, also known as Military Home Loans, have provided a lifeline for Veterans and active Military homebuyers for decades. Created in 1944 by the United States government, the VA home loan was designed to help WWII service members purchase homes upon returning home after the war.

 

The VA home loan program celebrated 75 years in 2019 and has guaranteed more than 25 million VA loans over the years, helping Veterans, active duty military members, and their families purchase or refinance a home. This article will take a closer look at the VA home loan, its benefits, who qualifies, and more.

 

What is a VA Home Loan?

The Department of Veterans Affairs (VA) Home Loan program, a.k.a., the VA home loan,  guarantees loans made to eligible Veterans, Service members, Reservists, National Guard members, and certain surviving spouses. Basically, the VA insures or guarantees a percentage of the loan, which helps make it possible for the Veteran to obtain a no-down-payment mortgage at a competitive interest rate that does not require private mortgage insurance. 

 

It’s important to note that the VA doesn’t make loans. Instead, as part of the program, the government guarantees a portion of the loan to make approval easier for qualified applicants. Therefore, borrowers must find a private lender that participates in the VA loan program and is willing to offer affordable financing.

 

What Are the Requirements?

Those interested in this program must meet specific VA home loan requirements to qualify. First and foremost, applicants must meet the minimum service requirements, which apply if you served at least:

 

  • 90 continuous days of active duty
  • 90 consecutive days during wartime
  • 181 days during peacetime
  • At least six years in the National Guard or Reserve
  • 90 days of cumulative service under Title 10 or Title 32 (for Title 32 service, at least 30 of those days must have been consecutive)
  • You’re the spouse of a military service member who died in the line of duty or because of a service-related disability

 

As part of the VA home loan requirements 2021, a lender will need a Certificate of Eligibility (COE) to verify the individual meets the service requirements necessary for VA home loan eligibility. Individuals can obtain a COE for a VA loan by applying through a VA-approved lender, online through the VA’s eBenefits portal, or by mail with VA Form 26-1880.

 

What Are the Benefits?

Numerous VA home loan benefits make home buying possible for veterans who might not otherwise qualify for a home loan, including a no down payment option and looser credit requirements. Let’s take a closer look at the five leading financial benefits of a VA home loan – keep reading. 

No Down Payment

This is likely the leader in VA home loan benefits. Qualified VA home loan borrowers can purchase up to the conforming loan limit in their county or set by the lender without a down payment. This benefit is great for veterans who do not have the means to make a down payment, as saving such a large sum of money can take years and limit their chances of homeownership.

 

No Private Mortgage Insurance

Typically, those applying for conventional and FHA home loans must pay private mortgage insurance (PMI) if they cannot make a sizeable down payment, which can be as much as 20% of the home purchase price. 

 

VA home loans, however, do not require mortgage insurance. Rather, borrowers must pay a mandatory funding fee, which the lender collects at closing and pays directly to the Department of Veterans Affairs. The only exception is for individuals with a service-connected disability, who are exempt from paying this fee. This fee helps lower the loan cost for U.S. taxpayers and ensures the program’s continuity since the VA home loan program doesn’t require down payments or monthly mortgage insurance.

 

Looser Credit Requirements

Contrary to popular belief, VA buyers don’t need perfect credit to secure financing, as VA Guidelines allow for some leniency. However, since private lenders ultimately make the approval decision, borrowers will need to consult with the lending institution to determine the exact credit score requirements necessary to successfully apply for a VA home loan. 

 

Forgiving DTI Ratios

When you buy a home, lenders will look at your DTI, or debt-to-income ratio, as part of the approval process. The DTI is a personal finance measure comparing an individual’s monthly debt payment to their monthly gross income. Most VA home lenders require a threshold for DTI ratio to qualify for the benefit. Although lender requirements will vary, the DTI requirements for VA home loans are typically looser than traditional or FHA home loans.

 

Curbing Closing Costs

Closing costs in the home buying process are inevitable, even with VA home loans. However, the VA limits what fees and costs veterans can pay at the time of closing, which is another benefit of a VA home loan. 

 

The VA also requires that a seller cannot pay more than 4% of the total home loan in the seller’s concessions. However, this rule only covers some closing costs, including the VA funding fee, and it doesn’t cover loan discount points. Again, a VA home loan specialist can elaborate on the closing costs requirements and details when applying for the benefit.

 

What’s the maximum loan amount?

There’s no VA specified limit for how much you’re allowed to borrow with a VA home loan. However, the VA does cap the amount of insurance provided to the VA home loan lender, causing the lender to potentially limit the loan amount. Basically, the maximum loan amount will differ from lender to lender. Also, if you’ve already received a VA loan, the amount you’re allowed to borrow again with no down payment may be smaller.

Do all lenders provide VA home loans?

No, not all lenders offer VA home loans. When you begin shopping around for a VA home loan, this should be the first question asked of the lender. As you shop around, you can also discuss qualifications, debt to income ratios, and any other concerns about the process with the lenders.

As you shop around for the best VA home loan lenders, we recommend looking for low VA home loan rates, affordable lender fees, high familiarity with the VA home loan program, and excellent customer service. 

 

If you reside in or are relocating to the Pacific Northwest/Western area of the US and are ready to apply for a VA home loan, contact a loan specialist at Directors Mortgage. We have team members in branch locations across the area who specialize in service with a personal touch. One of our local mortgage specialists will listen to your needs and walk you through how to apply for a VA home loan with the patience and care the process deserves.