What is a VA Loan?
The brave men and women of the military who make daily sacrifices in the service of this great country shouldn’t have to worry about affordable housing. That’s why the United States Department of Veterans Affairs has designed a special type of mortgage loan, the VA loan, for active-duty service members, qualifying veterans, and their families.
These types of loans provide lower rates and have lower qualification requirements than others in order to make homeownership easy and affordable for our nation’s defenders. There’s never been a better time to take advantage of these loans, as VA mortgage loan rates today are exceptionally low. Learn more about them and take advantage of a VA loan today.
VA Loan Requirements
The Department of Veterans Affairs has outlined some of the requirements that make a person eligible for a VA loan. The borrower:
- Must have completed at least 90 days of active-duty service during wartime
- Must have completed 181 days of active-duty service during peacetime
- If not the soldier, he or she must be the surviving widow/widower of the deceased veteran who died in service or from a service-related injury or disability (also applies to missing soldiers and prisoners of war)
- Must use the VA loan for their primary residence
- Must move into their house within 60 days of purchase
Outside of these requirements, it’s fairly easy to qualify for a VA loan. There is no minimum credit requirement although each lender will typically have their own standards, which fall within the low to mid-600 credit score range.
There’s no down payment requirement, either, but you may need one in order to compete with other prospective buyers. The VA also prefers that your DTI be no higher than 41%. As of this year, VA loan limits are $548,250 but may reach up to $800,000 in counties where the cost of living is higher.
Lenders are required to obtain a Certificate of Eligibility (COE) and this will dictate how much of a loan that the veteran can take out. If the veteran already has one VA mortgage and/or defaulted on one in the past, their eligibility for a new loan will be outline on the COE.
VA loans are not available to those who were discharged dishonorably for bad conduct or otherwise, but if you do not meet the requirements for length of service, you may still be eligible. Contact the VA for more information.
How Do VA Loans Work?
VA loans are backed by the Department of Veterans Affairs in the event that you, as the borrower, default on the loan. Because of this, VA home loan lenders have the peace of mind and security needed to provide loans with no down payment requirement and with favorable rates and terms. If you want to take out a VA loan, here’s how the process might look:
- Prequalify: Prequalification is the first step in the VA mortgage lending process. You will get together with a VA lender to get an idea of what you can afford to pay for a home based on your financial situation.
- Obtain a preapproval: If you’re confident in your ability to obtain a loan after prequalification, you can move forward to preapproval. In this step, your lender will collect documentation to verify your income and finances to determine your actual purchasing power. You’ll walk away with a letter to show sellers and their agents that you are a serious buyer in good standing.
- Offer on a home: Next comes the fun part: house hunting and offering on a VA loan-approved home you love. Be sure to utilize the expertise of an agent who understands VA loans and can help you draft up a reasonable offer.
- VA appraisal/underwriting: This is a step that differs from other loan processes. With VA loans, the property in question must be appraised to verify that it meets VA property requirements as well as fair market value. You can read about VA property requirements here. While the appraisal is happening, your loan underwriter will determine your worthiness as a borrower and clear you to receive VA loan funding.
- Closing: Finally, once all of the hurdles have been jumped, you can start signing the paperwork to transfer the title to your name and close on the property!
The Benefits of a VA Loan
VA loans make homeownership possible for people who thought they may never qualify for a mortgage loan. With a VA loan, there’s no mortgage insurance requirement, and you can qualify with less-than-perfect credit, even if your debt-to-income ratio (DTI) is high. In fact, you may not even be required to provide a down payment. What’s more, if you decide to move again in the future, you can continue to use the VA loan benefit on your next home.
VA Loans Options
There are several VA loan types. The one we’ve been primarily discussing thus far is the VA-backed purchase loan, which is the most commonly used VA loan that helps get veterans into primary residences with better terms and lower requirements. Here are a few other types to be aware of:
Native American Direct Loan Program
If you are a Native American Veteran or are married to one, you may be able to obtain this type of loan to build, purchase, or improve a house that sits on federal land.
Cash-Out Refinance Loans
VA loans aren’t just for purchasing homes; the VA also backs cash-out refinance loans, allowing you to use equity from your house to repay debts or cover other expenses.
Interest Rate Reduction Refinance Loans
If you already have a VA-backed home loan, you may be able to obtain this loan type to refinance the VA loan for more favorable terms and obtain lower monthly payments.
How to Apply for a VA Loan
Applying for a VA loan follows almost the same process as other mortgages. Find a mortgage company like Mission Loans that can offer VA loans and provide them information on your income, credit history, and more so they can decide whether or not you qualify.
The unique part of the VA loan application process is obtaining a certificate of eligibility. This is a document from the government that verifies your eligibility based on your (or your spouse’s) military service. The certificate can be obtained directly through the VA or through your mortgage lender, who can request this document on your behalf.
To learn more about VA loans, hear about VA loan rates, or get the application process started, contact Mission Loans. We have deep gratitude for your service and hope to help you get into the home you deserve!