A VA home loan is just one of the many benefits provided by the Department of Veterans Affairs (VA) to veterans and members of the Armed Forces.
These home loans help service members, veterans and their spouses buy homes or lots, and even refinance existing mortgage loans in order to get a better rate or more desirable terms. The VA home loan process involves submitting an application, meeting with lenders, searching for homes, having a home inspected and finally signing a purchase agreement along with closing paperwork.
You may be wondering “What is a VA home loan?” and want to know how it is any different from a traditional loan. While loans from the VA will help you buy a home just like any other type of financing, there are countless benefits to a VA loan that set it apart from conventional loans. Learn more about what makes these loans such a desirable option and find out how you can get approved for financing from the VA in the sections below.
Loans from the VA actually come from private lenders, including banks, credit unions and mortgage companies. Therefore, when you apply for a VA home loan, a private loan servicer will process your application. The VA’s role in the home buying process is to provide a guarantee or insurance on your loan, meaning that the government will cover your loan if you are no longer able to make payments.
Before you can apply for a loan, though, it is necessary to obtain a VA home loan certificate of eligibility or COE. Lenders will need to have this certificate in order to verify that you are eligible for a loan. There are a variety of VA home loan requirements to meet before you can obtain a COE, which are described in more detail later on.
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Once you have your COE, you will need to evaluate your finances to see how much you can afford for a monthly mortgage payment. Afterwards, you may begin contacting lenders in order to learn about VA home loan rates that you may qualify for. Finally, it is time to pick a real estate agent and look for homes. Once you have chosen a home, a VA appraiser will go over the property to make sure it is worth the asking price, after which you can complete the closing process and move into your new place.
There are many benefits of a veterans home loan that set this type of financing apart from regular loans. Most importantly, you purchase a home using a VA loan without having to make a down payment. While you would usually need to pay private mortgage insurance (PMI) to get a house without a down payment, you can avoid this expense by going with a VA loan.
Second, you can usually get approved for VA home loans, even if you have a low credit score. Note that there is no minimum credit score requirement to meet when you apply for a loan through the VA. You can still be denied if there are serious issues in your credit history, but in most cases, you will have an easier time getting approved for a loan from the VA if you have poor credit than you would when applying for other types of loans.
Third, it is possible to establish your VA home loan eligibility at any time and your benefits do not expire. Even if you served in the military decades ago, you can still get approved now and use your benefits if you meet the eligibility requirements.
Your eligibility for a VA home loan is based on a number of different factors, such as the length of your service and, if you are a veteran, the conditions of your discharge. The eligibility criteria also vary based on whether you were in the regular military, the Reserves, the National Guard or if you are a spouse of a veteran. No matter what, you will need to have an acceptable credit score and enough income to afford your mortgage once approved for a loan to meet the initial eligibility requirements. Obtaining a COE will verify that you meet these qualifications.
If you are a veteran, keep in mind that the home loan requirements for veterans are different based on whether you served during wartime or peacetime. Generally, you need to have served for 90 consecutive days during wartime, as opposed to 181 consecutive days during peacetime. However, the exact specifications can vary based on your rank and the branch of the military you were in. In any case, you need to have been discharged under any condition other than dishonorable. Be aware that you can meet the requirements for a VA home loan if you served for a shorter period of time, provided that you were discharged due to a service-related disability.
VA home loan interest rates tend to be better than those for traditional loans, which is one reason that these loans are so desirable. Interest rates will always vary based on individual factors as well as the lender that you choose. In general, you can usually get rates that are around .25 percent lower than conventional loan rates.
It is also important to understand what the VA home loan limits are. Generally speaking, you can receive a basic entitlement of $36,000, but lenders tend to grant up to four times your VA entitlement amount. As of 2018, you can borrow as much as $453,100 in most areas of the country. Limits will vary based on where you live. In some locations, loans can be as high as $679,650.
Veterans home loans also come with a variety of fees that you may have to pay. For example, you might be expected to cover closing costs as well as the cost to perform a home appraisal. Furthermore, the VA may charge you a funding fee, which is a percentage of the loan amount that you are given. Fees range from 1.25 percent to 2.4 percent of your loan, and vary based on the amount of your down payment (if any) and whether or not you were in the National Guard or Reserves.
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