Understanding VA Loans – Advantages and Eligibility Requirements Defined
As a military veteran or active service member, you might be curious about getting a Veteran Affairs mortgage – or VA Loan. These mortgages usually do not require a down payment, and are guaranteed by the Department of Veterans Affairs, which means that they do not require mortgage insurance.
So, what do you need to get a VA loan? Here are five things you need to know about the Veterans Affairs mortgage program.
If you are, or have been, a member of the military, reserves or National Guard you’re more than likely eligible to apply for a VA loan. Spouses of military members who’ve died while on active duty, or as a result of a service-related disability, may also apply for this program.
Generally, after six months of service, active duty members become eligible to apply for the VA loan. Reservists and members of the National Guard have to wait six years to apply; however, if they’re called to active duty before the six years are up, they’re eligible after 181 days of service.
Potential borrowers must obtain a certificate of eligibility. This form can be filled out online; however, you do not need the certificate in hand to start the process.
During the pre-approval phase, lenders can get this document for borrowers.
- Advantages of a VA Loan
The VA loan program helps those qualified get a piece of the American Dream without having to come up with a sizable down payment. It requires no mortgage insurance and no pre-payment penalties, and offers competitive interest rates. These benefits translate into significant savings for VA loan borrowers.
The misconception about the program is that it is a one-time benefit. In fact, that is not the case. Once earned, a borrower can take advantage of this type of loan throughout their life.
Even though the costs of getting a VA loan are generally lower than conventional loans, they still carry a funding fee that varies, dependent on whether the borrower is a veteran of the military, Reserves or National Guard. Other factors are active duty vs. veteran, length of service, has the person opened a VA loan before and the amount of the down payment.
For example: A first-time VA loan borrower, with a zero-down payment, would pay a 2.15 percent fee on the loan amount. The fee is reduced if the borrower makes a down payment of 5 percent or more.
In general, members of the National Guard and reservists will pay approximately a quarter of a percentage point more than active-duty members pay. If you receive any type of disability compensation, the loan fees are waived.
Funding fees vary widely, from 0.5% to 3.3% of the loan amount, depending on the veteran’s service and loan type.
- Underwriting Requirements
The VA does not require a minimum credit score when applying for a VA loan; however, because the loans are through private lenders they generally have their own requirements. Most lenders want borrowers with a 620 credit score, or higher.
Borrowers with a lower credit score may be granted a loan, but will likely have a much higher interest rate. When applying for the VA loan, borrowers must show that they have sufficient income to repay the loan, with no excessive debt. However, these guidelines are usually more flexible than they are with conventional loans.
VA loans are only available to finance a primary home, and are not to be used to purchase or refinance vacation homes.
According to the VA there is no cap on the amount you can borrow; however, there are limits on the amount of liability the VA will assume. These limits depend upon the county/parish you live in, because the value of the house depends greatly upon its location.
- What if I stop paying the mortgage?
Another big advantage to the VA loan system is that they offer assistance to struggling borrowers. If the VA loan borrower cannot make payments on the mortgage, the VA will renegotiate with the lender on behalf of the borrower.
The VA counselors are there to help borrowers figure out their repayment plan, modify their loans and do whatever they can to help you avoid foreclosure.
As a qualified VA lender, we’ve helped thousands of veterans, active service members and their families take advantage of their earned VA benefits. Contact one of our Home Loan Experts today to learn more!