How Do VA Loans Work?


Whether you’ve served on a ship, on an overseas base or in the field, if you’re a military veteran, you’ve probably spent a lot of time away from home. Maybe that’s why more than 75% of veteran households are homeowners, compared to just over 60% of the general population.

Despite this, many eligible military borrowers haven’t used their VA home loan benefits, either because they thought the process would be too complicated or simply didn’t know about the benefit. That said, changes to the VA lending program in 2019 have helped spur greater use of the program, especially among younger home buyers.

If you’re a veteran or service member and you’re ready to learn about the benefits of the largest government-backed lending program for military homeowners, we’ve got everything you need.

What Is a VA Loan: Basic Training

In a nutshell, VA home loans are mortgages backed by the U.S. Department of Veterans Affairs. Getting a VA loan is just like a conventional mortgage, and you’re still borrowing from a bank or mortgage lender.

The key difference is that the VA underwrites your home loan. And because you’re a veteran, you’re eligible for terms that wouldn’t be available to a civilian borrower.

VA home loans aren’t a new benefit. They’ve been around since 1944 and are widely considered one of the best perks of military service.

Why Are VA Loans Better for Military Borrowers: More Firepower

The benefits of VA home loans go way beyond 0% down payments. These loans offer:

  • Lower interest rates: A VA home loan can offer lower interest rates
  • No down payments: Lenders usually prefer that you put 20% down to qualify for a mortgage. With a VA home loan, you may be able to pay 0% down
  • No mortgage insurance: Normally, if you don’t have a 20% down payment, lenders may ask you to pay extra each month for private mortgage insurance (PMI). With a VA loan, PMI isn’t required.
  • Easy to refinance: If you want to move or swap your VA-backed mortgage for a lower interest mortgage down the road, you won’t need any equity to do it and there are special programs that streamline the process.
  • Lower credit score requirements: Lenders may approve applicants with credit scores as low as 580.
  • Relaxed borrowing requirements: You can qualify for a VA loan even if your debt-to-income (DTI) ratio is high.
  • Disabled veteran-friendly benefits: If you’re disabled, you may be able to have the VA loan funding fee waived, get a property tax exemption, or an adaptation grant for your home rolled into your VA loan.
  • Lower or capped closing costs: VA loans generally have lower closing costs than traditional mortgages and sellers can pay most closing costs.
  • Can be used again: You can apply for multiple VA loans throughout your life

How Do I Qualify for a VA Loan: Know Your Loadout

If you’re a military veteran, you’ll probably qualify for a VA loan. That’s not a guarantee, though. To qualify for a VA mortgage loan, you need to meet at least one of the following criteria:

  • At least 181 active service days during peacetime
  • Completed at least 90 consecutive active service days during wartime
  • Served with the National Guard or Reserves for at least 6 years – or 90 days under Title 32 rules (with at least 30 consecutive days in the mix)
  • Married to a service member who died in the line of duty or from complications of a service-related disability
  • If you were married to a service member who died and you got remarried, you may not qualify for a VA loan (there are some exceptions)

To prove that you meet these requirements, you’ll need a Certificate of Eligibility (COE). This certificate proves that you’re eligible for a VA home loan.

You’ll need a few different documents to get a COE. Depending on your eligibility criteria, these could include:

  • Discharge or separation papers
  • Statement of service
  • NGB Form 22 or 23 if you served in the National Guard
  • Proof of honorable service
  • If you’re a surviving spouse, you’ll also need to complete VA Form 26-1817

Once you can demonstrate that you’re eligible for a VA home loan, you’ll need to go through the mortgage process. It’s pretty similar to getting a conventional mortgage, but there are a few key differences.

Acceptable property type

You can finance a single-family home, a VA-approved condo, a new build, a modular unit or a multi-unit property. Some lenders also finance manufactured homes.

Credit score

There’s no minimum score requirement for a VA loan, but you’ll find it hard to qualify if you have a credit score under 580.

Sources of income

You need to earn enough to pay your mortgage and your other bills. Your income doesn’t have to come from only full-time employment – and VA disability benefits can help.

Meet lender down payment standards

While 0% down payment loans are available, if your credit score is too low or you can’t demonstrate income, you may need to make a down payment to get approved.

It’s possible and common to buy a home without a down payment using a VA loan. But under certain circumstances, you may have to prove you have the cash reserves to make your loan payments.

Buying A Home with a VA Home Loan: The Mission Brief

Straight up, here’s what you need to do to get a VA loan:

Get preapproved

Once you have your COE in hand and your finances organized, you’ll want to get preapproved for a mortgage. Many sellers will require a preapproval before you can make an offer. The preapproval is also helpful because it gives you a sense of what kind of mortgage terms lenders will offer you.

Find a home

Finding a home requires careful recon. Start researching your area to find the right neighborhood. Attend open houses and make sure and do some recon on the housing market.

Need an assist? Work with a real estate agent and ask about their experience with VA loans. You can also look for real estate agents who are military veterans.

Put in an offer

You found your dream home, and your mission is a go! Now, it’s time to put in an offer.

Your mortgage should include the following language in the purchase agreement: “VA escape clause” or “VA option clause.” This lets the owner know that if the home doesn’t meet VA standards, you have a legal option to back out of the deal.

Pass inspection and appraisal

You’ve faced inspections from your drill instructor, but now it’s the home’s turn.

Before you can buy a house, you need to get it inspected and appraised by a VA-approved appraiser.

If the price for your chosen property doesn’t match its market value, you may be able to file a Reconsideration of Value (ROV) dispute. You may also be able to renegotiate the sale price or pay the difference between your approved loan value and the sale price.

Go through underwriting

After every mission, you have to account for your gear, fill out after-action reports and justify your actions. Underwriting is a little like that, but you deal with a lender instead of a commanding officer.

As part of the underwriting process, you’ll need to provide detailed information about your finances and sign more paperwork. If you have questions, talk to your real estate agent and loan officer. It’s their job to have your back.

Close on your new home

After a few more sleepless nights, you’ll sign the paperwork, collect the keys and officially become a homeowner.

Mission accomplished.

Should I Get a VA-Backed Loan To Buy a Home: Know the Terrain

VA loans have lots of benefits, like lower interest rates and no down payment requirements. But they aren’t right for every home purchase.

VA loans are intended to assist veterans who want to buy a primary residence or starter home. If you’re looking to buy a home as an investment property or a vacation home – a VA loan can’t be used.

VA Loans: A benefit earned through service

The most important thing to remember about VA loans is that they are a benefit exclusive to members of the military, and you’ve earned it through your service. If your goal is homeownership, a VA loan could be vital to the success of your mission.

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