If you are a service member or veteran interested in buying a home, you should definitely take advantage of the benefits offered through a VA home loan. Through this program, veterans and their families can afford to buy a home with the affordable mortgage options offered by the United States Department of Veterans Affairs.
It is a suitable option for anyone who qualifies due to the several benefits that are offered.
What is a VA loan?
VA loans are government-backed mortgage loans that provide several benefits to active-duty service members, veterans, and eligible surviving spouses who want to purchase or refinance a home.
The Department of Veterans Affairs makes it easier to secure financing. The VA loan offers a no down payment option, which can be a significant factor when it is time to buy a home.
The loans also have less stringent credit and income requirements attached to their loans. Traditional mortgages usually require high credit and higher incomes. The VA home loan has less rigid requirements because the loan is guaranteed by the Department of Veterans Affairs.
Private lending companies provide the loans, but the Department of Veterans Affairs guarantees them. Due to this guarantee, having private mortgage insurance is not required. That is a great benefit because your overall monthly expenses for the home will be lower.
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Who is eligible for a VA home loan?
Almost every member, or veteran, of the military, reserve, and National Guard is eligible to apply. Additionally, the surviving spouses of military service members that died on active duty or through a service-related injury are eligible for the loan.
For active members of the military, the eligibility starts after approximately 6 months of service. National Guard members and reservists will need to wait 6 years to apply. However, if they are called to active duty before the six-year requirement, they will be eligible after 181 days of service during peacetime or 90 consecutive days of active service during wartime.
Comparison of VA Loans with Other Mortgage Options
When considering a home purchase, veterans have several mortgage options, including VA loans, conventional loans, and FHA loans. Understanding the differences can help in making an informed decision.
VA Loans
- Down payment: No down payment required.
- Mortgage insurance: No private mortgage insurance (PMI) required.
- Credit requirements: More lenient credit requirements.
- Loan limits: Higher loan limits, up to $4,000,000 in certain cases.
- Fees: The VA loan funding fee varies from 1.25% to 3.3%, but can be rolled into the loan amount.
Conventional Loans
- Down payment: Typically requires a minimum of 3-5%.
- Mortgage insurance: PMI required if the down payment is less than 20%.
- Credit requirements: Stricter credit score and history requirements.
- Loan limits: Lower loan limits compared to VA loans.
- Fees: Various lender fees and potentially higher interest rates.
FHA Loans
- Down payment: As low as 3.5%.
- Mortgage insurance: Required mortgage insurance premiums (MIP) for the life of the loan.
- Credit requirements: More lenient than conventional, but stricter than VA.
- Loan limits: Lower than VA loans.
- Fees: Upfront mortgage insurance premium and annual MIP.
Occupancy Requirements
Yes, VA loans typically require the borrowers to move into their new home within 60 days of purchase. Plus, you must use it as your primary residence.
There are always exceptions to these residency requirements, but circumstances will be evaluated on a case by case basis.
In several situations, spouses or minor children of service members can satisfy the residency requirement.
Underwriting Requirements
There are no minimum credit score requirements to secure a VA loan. However, private mortgage companies offer the loans, so potential borrowers will need to satisfy the requirements of their lender. Typically, lenders prefer applicants with a credit score of at least 620.
You must prove that you have enough income to pay for the loan. Additionally, private lenders prefer that you do not have a heavy load of debt already.
Although there are some requirements, generally VA loans have fewer requirements than conventional loans.
VA Loan Limits for 2024
For 2024, VA loan limits have been adjusted. The standard VA loan limit is now $766,550 for most U.S. counties, up from the previous year. In high-cost counties, the limits have increased to a maximum of $1,149,825 for a single-family home. Notably, these limits do not represent a cap on the loan amount but are related to the maximum guarantee offered by the VA. For VA high-balance loans, the limits in 2024 can reach up to $4,000,000 for purchase loans.
VA Loan Fees for 2024
The VA funding fee for 2024 remains an essential aspect of VA home loans. This fee, which helps cover the costs of the VA’s loan guarantee, ranges from 1.25% to 3.3% of the total loan amount.
The specific percentage depends on factors such as the size of your down payment and whether it’s your first VA loan. For a first VA purchase or construction loan, the fee is 2.15% with a down payment under 5%, 1.5% with a down payment between 5% to 9.9%, and 1.25% with a down payment of 10% or more.
For subsequent VA loans, the fees are slightly higher. The funding fee for VA cash-out refinances is 2.15% for the first use and 3.3% for subsequent uses. For an Interest Rate Reduction Refinance Loan (IRRRL), the fee is consistently 0.5%.
These fees can be paid upfront or rolled into the mortgage amount. Rolling the fee into the loan can modestly increase monthly payments and total loan costs. For example, incorporating a 2.15% funding fee into a $300,000 loan at 5.7% interest with 0% down would increase the monthly payment by approximately $40.
VA loans will also have closing costs, but the VA limits which fees can be charged.
Private Mortgage Insurance
VA home loans do not require private mortgage insurance (PMI). This benefit can provide a huge benefit to borrowers.
PMI can end up costing the borrower thousands of dollars. Through the VA home loan program, you can avoid this entirely.
Remember that you will have to pay a one-time funding fee that will in some ways replace the need for PMI. It is still a worthwhile savings to avoid PMI entirely.
Help for VA Borrowers Facing Financial Hardships
Yes, the VA home loans can help to provide assistance to borrowers that are struggling to pay back their loans. If a borrower is struggling to make the mortgage payments, then the VA may step in to negotiate for the borrower.
The VA has financial counselors who can assist in a renegotiation of payment plans directly with the private lenders. These counselors can also help negotiate loan modifications and some alternatives to foreclosure on behalf of the borrower.
Even if you are not a VA home loan recipient, any veteran can call the Department of Veterans Affairs for assistance if they are struggling to repay their mortgage. Veterans can call 877-827-3702 for assistance and guidance through financial hardship.
Step-by-Step Guide to Applying for a VA Loan
Applying for a VA loan involves several steps. Here’s a detailed guide to help you through the process:
- Confirm eligibility: Ensure you meet the service requirements for a VA loan. This typically involves a certain period of active duty service.
- Obtain a Certificate of Eligibility (COE): You can apply for a COE through the VA’s eBenefits portal, through a VA-approved lender, or by mail. The COE proves your entitlement to a VA loan.
- Shop for a VA-approved lender: Not all lenders offer VA loans. Research and choose a lender experienced in VA loans for better guidance.
- Get Preapproved: Preapproval gives you an estimate of how much you can borrow and shows sellers you’re a serious buyer.
- Find your home: Work with a real estate agent to find a home that meets your needs and budget.
- Make an offer and negotiate: Once you find a home, make an offer. Your agent can help with negotiations.
- Have the home appraised: VA loans require a home appraisal by a VA-certified appraiser to ensure the property meets VA and safety standards.
- Undergo a VA loan underwriting: The lender will review your financials to ensure you can repay the loan.
- Close on your loan: Once approved, you’ll sign the final paperwork and close the deal.
Tips and Common Mistakes
- Respond promptly to lender requests for information.
- Avoid major financial changes, like new credit accounts or large purchases, during the loan process.
- Keep track of all documents and communications for reference.
What documents are required to secure the Certificate of Eligibility?
You should have your documentation ready when you are applying for COE. It will help to make the process go smoothly. Here’s what you will need to apply:
- DD Form 214 – Veterans and members of the National Guard or Reserve members that were called into active service will need this form to provide eligibility. The form will show your type of service and reason for leaving.
- A current statement of service signed by the personnel office or commander of the unit – Active military and National Guard and Reserve members that were not called into full-time duty will need this form. It should include your Social Security number, date of birth, entry of date of active duty, duration of lost time, your name, and the name of the command that is providing the information.
- NGB Form 22 – This report of separation and a record of service is required for current National Guard and Reserve members that were not called into active service.
- NGB Form 23 – This form provides the Retirement Points Accounting and a proof of the character of service for current members of the National Guard or Reserve that were not called into full-time duty.
- Latest annual retirement points statement and evidence of honorable service – These forms are required for discharged members of the Selected Reserve that were never in active duty.
- VA form 26-1817 and veteran’s DD214 – If you are a surviving spouse that is receiving Dependency & Indemnity Compensation benefits, then you must provide both forms and both Social Security numbers on the forms.
- VA for 21-534, DD214, marriage license, and death certificate – If you are a surviving spouse that does not receive Dependency & Indemnity Compensation, then you must provide all of these forms to qualify.
Managing Your VA Loan Post-Approval
Once your VA loan is approved, understanding how to manage and service it is crucial. Here’s what you need to know:
- Loan servicing: Your lender will service your loan, handling monthly payments, taxes, and insurance. Always communicate with your lender about any changes in your financial situation.
- Understanding amortization: VA loans typically have an amortization schedule, detailing how each payment is split between principal and interest. Over time, a greater portion of your payment goes towards the principal.
- Options for additional payments: You have the option to make extra payments without penalty. This can reduce the total interest paid and shorten the loan term.
- Refinancing options: VA loans offer refinancing options like IRRRL for lowering interest rates or terms.
- Loan modifications and assistance: If you face financial hardship, contact your lender immediately. There may be options for loan modification, forbearance, or other assistance programs.
- Selling or transferring the loan: VA loans can be assumed by other eligible borrowers, but you must get lender approval. If you sell your home, your VA loan entitlement can be restored for future use.
Beyond Home Buying: Alternative Uses for VA Loans
VA loans, known primarily for assisting in home purchases, offer flexibility for various other housing-related financial needs. These include:
- Adapted Housing Grants: Tailored for veterans with service-connected disabilities, these grants help modify or purchase an adapted home to enhance living quality.
- Interest Rate Reduction Refinance Loan (IRRRL): Also known as a VA streamline refinance, the IRRRL is designed to lower the interest rate on your existing VA loan, resulting in reduced monthly payments.
- Native American Direct Loan (NADL) Program: Specifically for Native American veterans, this program offers direct home loans for purchasing, constructing, or improving homes on Federal Trust Land.
- Cash-Out Refinance: This option allows veterans to refinance a non-VA loan into a VA-backed loan or extract cash from home equity for purposes like debt consolidation or home improvements.
- VA Renovation and Home Improvement Loans: Designed for funding home improvements and renovations, these loans are similar to purchase loans but include additional funding for repairs.
Each of these programs addresses specific needs, providing veterans with versatile options to manage their housing finances effectively.
Bottom Line
VA home loans stand out as a remarkably beneficial program for eligible service members, veterans, and their families. With advantages like no required down payment, no PMI, and lenient credit requirements, these loans significantly ease the path to homeownership.
Additionally, the variety of loan types, including refinancing and improvement options, provide flexibility to address diverse financial needs. Whether you’re buying your first home, refinancing, or improving your current residence, a VA loan is a valuable tool, offering both affordability and support tailored to the unique circumstances of those who have served.
Frequently Asked Questions
Can a VA loan be refinanced?
Yes, VA loans can be refinanced. Options include the VA Streamline Refinance (IRRRL) for existing VA loans and a VA Cash-Out Refinance for non-VA loans.
Is it possible for someone to assume my VA loan?
Yes, VA loans can be assumed by qualified borrowers. However, lender approval is required, and the process must adhere to VA guidelines.
How does divorce affect VA loan eligibility?
In a divorce, VA loan eligibility may be affected based on the division of assets and debts. The ex-spouse of a veteran may retain the home and loan, but this does not restore the veteran’s entitlement used on that loan.
What happens to a VA loan if the borrower dies?
If a VA loan borrower dies, the surviving spouse may assume the VA loan if they were a co-borrower. If not, the loan must be repaid or refinanced into a non-VA loan.
Can a non-military spouse apply for a VA loan?
Non-military spouses cannot independently apply for a VA loan. However, they can be a co-borrower on a joint VA loan with a qualified veteran or service member.
