Managed by the Veteran’s Administration, the VA mortgage loan offers 0% down payment loans to those who are in active service or who have retired from service. With extremely favorable loan terms and loans available for both building and renovation, it’s one of the most advantageous loan packages available for those who have served.
Requirements for a VA Home Loan
The VA home loan has certain eligibility requirements for members who have already served. These eligibility requirements cover when the veteran served and for how long. For active duty personnel, eligibility for a VA home loan begins at 90 days of continuous active service. For select reserve or national guard personnel, individuals that have completed six years or more may be able to get a VA mortgage loan.
VA loan requirements may also extend to the unmarried spouses of veterans who died while in service, the spouse of a service member who is missing in action, or the surviving spouse of a veteran whose death was not service connected (in some situations).
Those who believe that they may qualify for a VA loan should contact the Veteran’s Administration directly, as there are other potential ways to qualify.
In addition to the above qualifications, the borrower must show that they have the satisfactory income and credit to pay the loan. Unlike many other loan packages, there are no specific VA loan requirements regarding credit and income. Instead, the entire situation is looked at by the loan officer.
Buying a Home with a VA Loan
Once the VA loan requirements are met, VA loans can be used to:
- Either purchase an existing home or build a new home.
- Purchase a condominium, as long as it is VA-approved.
- Purchase a home and renovate it at the same time.
- Add energy-efficient features to an existing home.
- Purchase a manufactured or mobile home or lot.
- Refinance another loan, assuming eligibility requirements are met.
VA loans are extremely versatile and are underwritten by many lending institutions, as they are backed by the VA.
VA Home Loan Limits
There is no actual cap on the amount that a veteran can borrow through a VA loan. However, there are VA home loan limits on how much the VA can personally guarantee. These limits are based on location. A VA loan in California will guarantee a higher value home than a VA loan in the Midwest.
If the loan limit exceeds the amount that the VA can guarantee, it is up to the bank regarding whether they want to underwrite this loan. Further, the entitlement offered by the VA covers up to $36,000 of the down payment for each eligible veteran. Most lenders will not lend more than four times this amount without a down payment. If purchasing a home in a high-value region, such as a VA loan in California, it may be necessary that the veteran put down a down payment to secure their loan.
Fees Associated with the VA Loan Process
A funding fee is originated during the VA loan process; however, some veterans do not have to pay this fee. Veterans who are currently receiving compensation for a service-related disability or those who would be eligible to collect this compensation do not have to pay the funding fee. Surviving spouses also don’t have to pay the VA funding fee. There are also other fees associated with the VA loan process that is charged by the lender themselves, such as closing costs.
The Benefits of a VA Home Loan
Not only do VA mortgage lenders not require a down payment, but VA mortgage lenders also cannot charge private mortgage insurance. A similar loan completed through the FHA loan program is going to be substantially more costly; not only would the borrower need to pay 3.5% down, but they would need to pay an additional private mortgage insurance fee until they had paid off 20% of the loan’s principle.
The limitation on buyer’s costs through VA home loan lenders further makes the VA loan more affordable for borrowers, and VA mortgage rates are generally lower than comparable mortgage protects. Low VA mortgage rates can directly influence the amount of home an individual can buy. Further, VA home loan lenders do not have any early repayment penalties; veterans can use the additional amounts they saved on their mortgage to attempt to pay it off early.
VA home loan lenders allow mortgages taken out under the VA to be “assumed.” In other words, another person can assume mortgage payments for this loan with lender approval. This gives the veteran additional flexibility, especially if they aren’t certain where their position with the military will take them next. Finally, VA home loan lenders are less likely to foreclose upon a VA loan, as there are foreclosure avoidance programs specifically designed to avoid this.
The Limitations on a VA Loan
Though VA home loan rates are competitive and comparable to many other loan products, the VA loan interest rate is still going to be based in part on the creditworthiness of the borrower. If a borrower is not creditworthy or in a difficult financial position, the VA may not be able to guarantee a loan or may only be able to offer sub-prime VA home loan rates.
Apart from the VA loan interest rate, the VA home loan cannot guarantee the condition of the property, just the loan itself. Borrowers worried about the condition of the home that they’re buying should seek their own appraisals and home inspections. The appraisal that is offered by the VA mortgage program is solely to ensure that it isn’t being over-mortgaged and shouldn’t be used for other purposes.
With low VA loan interest rates and flexible VA loans requirements, the VA program is the perfect one for many prospective home buyers. If you meet VA home loan requirements, there is not likely to be a better loan package available for you. At the same time, VA home loan requirements do restrict this loan program to active or former service duty members (and their spouses), which makes it a relatively niche loan product.
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