VA Loans Guide
A VA loan is a $0-down mortgage that is issued by private lenders and guaranteed by the Department of Veterans Affairs. These are available to service members, veterans, and military spouses.
The VA loan program was established to help service members and their families purchase a home without needing a down payment or strong credit.
These mortgages offer the distinct advantage of having lenient eligibility requirements and low interest rates. They can be used to either buy your primary residence or to refinance.
VA Loan Entitlements
VA loan entitlements are the amount of the mortgage that the department of Veterans Affairs guarantees. This helps reduce the down payment associated with the mortgage. There are two types of entitlements: basic entitlement and bonus entitlement.
The basic entitlement is the lesser of $36,000 or 25%. Typically, lenders will offer four times the basic entitlement, or $144,000. Essentially, this means the government covers a 25% down payment on a $144,000 home.
Since home prices often exceed this amount, there is a bonus entitlement. For this, the government uses the conforming limits established by the Federal Housing Finance Agency (FHA) to set the bonus entitlement amount.
The current conforming limit is $484,350. The bonus entitlement is 25% of this amount minus the basic entitlement of $36,000, which leaves you with an entitlement of $85,087.
Technically, there are no limits on the amount you can borrow — there are only limits on the amount that they will guarantee.
The maximum amount that you can borrow without having to make a down payment is $484,350.
Who Can Get One?
These products are available to most veterans, military members, National Guard members, reservists, and military spouses.
Members of the National Guard and reservists have to wait at least six years before applying unless they are called to active duty. In which case, they can apply after 181 days of active service.
There is no minimum credit score for one since the government doesn’t provide the mortgage itself.
However, the lender that you choose to borrow through may have their own credit requirements. Typically, you should aim for a score of at least 620. You also need to be able to show sufficient proof of income.
According to the VA, most veterans are able to close without paying any fees. That being said, there are some fees that you may be responsible for.
The government requires borrowers to pay a funding fee, which is used to fund the program.
The funding fee for first-time borrowers is typically 2.15% of the purchase price of the home. If you have already used the this program, then each subsequent use typically requires a 3.3% funding fee.
Keep in mind, though, that the funding fee varies based on your circumstances. Also, veterans with service-related disabilities don’t have to pay a funding fee.
These fees can be factored into the total amount of your mortgage, so you don’t necessarily have to pay anything upfront.
What About PMI
For most conventional mortgages, primary mortgage insurance (PMI) is required for buyers who aren’t able to make a down payment of at least 20%.
But, since they are government-backed, borrowers do not have to worry about purchasing PMI.
VA vs. Conventional
If you’re curious to know why you might consider one over a conventional mortgage, there are plenty of reasons, including:
- 0% down payment for qualifying borrowers, compared to down payments of up to 20%
- Competitive interest rates.
- Lenient eligibility requirements.
- Private Mortgage Insurance is not required.
- In most cases, there are no closing costs.
If you qualify for one, chances are that it is a much better option for you than a conventional mortgage.
Besides the advantages listed above, these products offer a number of additional benefits, including:
- Interest Rate Reduction Refinance Loan (IRRRL): This can help you refinance your existing debt to reduce your interest rate.
- Adapted Housing Grants: Helps veterans purchase or build a home to accommodate their service-connected disabilities.
- Other Benefits: Several states offer additional resources, such as property tax reductions, to veterans.
The VA is dedicated to providing a number of resources to help veterans purchase a home without having to meet strict requirements.
How to Get One
Ready to apply?
The process is fairly straightforward. There are just a few steps you need to take to get started.
Certificate of Eligibility (COE)
Before actually applying for a loan, you’ll have to apply for a Certificate of Eligibility (COE). This certificate proves that you meet the eligibility requirements listed previously.
There are a few ways to apply:
- You can apply online at VA.gov.
- You can apply through your lender.
- You can apply by mailing in your application.
To find information about what you need to fill out the application and where to send your application by mail, visit this page.
Find an Approved Lender
Shopping for a lender is much like shopping for a traditional mortgage.
Search for lenders in your area and be sure to compare at least three to find the lender that meets your needs.
You should search for reviews, ask for recommendations, and ask potential lenders any questions regarding your specific circumstances.
Most national banks offer them, so there is no shortage of options to choose from.
Applying for One
Applying for one is similar to applying for a conventional mortgage.
You’ll need to provide:
- Proof of income
- Proof of employment
- Bank statements
- Proof of eligibility
- And other supporting information
Your approved lender will work with you to ensure you understand your benefits and responsibilities. Once approved, your funds will be disbursed so that you can purchase your new home.
Frequently Asked Questions
- Can I Get More Than One?
Yes, depending on the circumstances. Typically, if you have repaid your previous balance and moved out of your previous home, you can restore your eligibility. You can only hold one mortgage at a time, however.
- How Can I Prove My Active Military Service?
According to the VA, active service members must provide an original statement of service signed by, or by direction of, the adjutant, personnel officer, or commander of your unit or higher headquarters. It must identify you and your social security number, and provide your date of entry on your current active duty period and the duration of any time lost.
- Are My Children Eligible?
The children of an eligible veteran are not able to take advantage of the program. Only veterans themselves, and spouses, in certain cases, are eligible.
Based on a 30-Year Fixed rate mortgage monthly payment for a $200,000 loan at 3.8%