What is a VA loan?
It's a type of mortgage for Veterans that is guaranteed by the Department of Veterans Administration (VA). In many cases, there's no required down payment, no private mortgage insurance (PMI) , and the benefits can be reused. Note that the VA doesn't issue the mortgage. You get it through a private lender and the VA guarantees it.
VA loans require an upfront, one-time payment called a VA funding fee, determined by the loan amount, your service history and other factors. This fee can usually be added to the loan amount.
Who's eligible for a VA loan?
VA loan eligibility is based on when and how you served. Eligibility depends upon whether you're active duty or separated, the years you served and if your service was during wartime or peacetime. See the VA guidelines for eligibility categories and requirements. Generally, VA loans are available to:
- Current active duty military service members. Active duty members qualify with 90 days of continuous service during wartime, while National Guard members and reservists are eligible after 90 days of active service or six years of Guard and Reserve service. During peacetime, it's 181 continuous days of service. Various dates and eligibility guidelines can be found on the VA website.
- Military veterans. Those who served are eligible with 24 continuous months of active duty service — with other than dishonorable discharge.
- A not-remarried spouse of a veteran who died in service or from a service-connected disability.
- Spouses of service members who are missing in action or prisoners of war.
- A surviving spouse receiving Dependency and Indemnity Compensation (DIC) in situations where the veteran's death wasn't service related.
How do I get a VA Certificate of Eligibility (COE)?
While you can apply online through the VA's eBenefits portal your lender may be able to establish your eligibility and get a COE for you in just a few minutes. The COE confirms that you've met the service requirements, so you may need to provide some service-related documentation, which can vary.
Is there any financial underwriting?
Yes. You'll need to meet financial guidelines the VA sets, and your lender will look at things like your credit score and history, assets, and employment and income history. It may also require additional information about your other expenses, such as child-care costs.
Can I get a VA home loan with bad credit?
The VA doesn't require a minimum credit score, but most lenders need to see a score of at least 620. It's important to know where your credit stands before you start looking for a home. Check your credit report for errors or things you don't recognize and work with the credit bureaus to correct them. Your lender may require that you address collections and past-due accounts before being approved for a loan. Other ways you can improve your score include making all your payments on time and reducing your balances. You also want to avoid taking out new debt, like car loans or credit cards, once you're in the homebuying process.
What's the maximum VA loan amount?
For borrowers with full entitlement, there's no limit to the amount the VA will guarantee. Just know that your lender may require a down payment if you're applying for more than the conforming loan limit for the county the property is located in. For most counties across the country, the maximum conforming loan limit for a single-family home in 2020 is $510,400.
What kind of home can I buy with a VA loan?
First, it must be your primary residence — not a vacation home or investment property. VA loans also have occupancy rules that generally require you to move into the home within 60 days of your loan closing. There are some exceptions to the 60-day occupancy requirement. For example, if you have PCS orders, are deployed and other scenarios.
As for the type of home, it can be an existing single-family home, townhouse or condo, or new construction. While mobile and manufactured homes on a permanent foundation are eligible for the VA program, not all lenders — including USAA Bank — finance them.
Because the VA has high standards on the condition of the property, you may have a harder time taking on a major restoration project using a VA loan. Structural, safety and sanitary deficiencies noted by the VA appraiser usually need to be fixed before closing. Some lenders may offer special VA programs for homes that need alterations or repairs.
Will I have to pay for PMI?
No. VA loans don't require you to pay private mortgage insurance (PMI). Conventional loans typically require PMI when you make a down payment of less than 20%.
Can I use a VA loan more than once?
Yes. Your VA loan benefits can be reused if you have remaining VA entitlement or no longer own the home and haven't previously defaulted on a VA loan.
Can I refinance a VA loan?
Yes. There are two ways to refinance a VA loan.
- A VA Interest Rate Reduction Refinance Loan (IRRRL) allows you to refinance a fixed-rate VA loan if it lowers both your interest rate and overall monthly payment. An adjustable-rate VA loan can also be refinanced, but your interest rate may be higher. With this kind of refinance loan, you can't get cash back. Lenders will review your housing and payment history and may pull your credit score or report. Credit policies and appraisal requirements can vary.
- A cash-out refinance allows you to get cash from the equity you've built in your home. But you'll need to go through a credit check and underwriting again and an appraisal may be required.
Do I need money to get a VA loan?
While you may not need to make a down payment - which is part of the purchase price you pay directly rather than borrowing it - you'll have to pay closing costs, which could range from 1% to 5% of the loan amount.
Closing costs cover a variety of needs, including property appraisals, mortgage discount points, title searches and insurance, attorneys, flood insurance and more.
You may be able to negotiate a deal in which the seller pays some or all your closing costs. If you hope to make this happen, tell your real estate agent up front so you can put it on the table when you make your offer.
Can closing costs be rolled into the loan?
It depends. If you're using a VA loan to purchase a house, any closing costs need to be paid out of pocket. If you're refinancing with a VA IRRRL, the closing costs can usually be added to the amount you're borrowing. Keep in mind, though, financing your closing costs means you'll end up paying more over time due to interest.
With a refinance loan where you're taking cash from the equity you've built, closing costs can be paid for with the money you get.
What's a VA funding fee?
It's a one-time, non-refundable charge you generally have to pay when you get a VA-backed mortgage to purchase or refinance a home. In most cases, the VA funding fee can be rolled into the loan. But keep in mind it will add to your overall loan balance.
The fee typically ranges from 0.50% to 3.60% of the loan amount. Different factors can impact the fee, such as if the loan is a purchase or refinance, your down payment amount, whether you served in active duty military, National Guard or Reserves or if you've used your VA loan eligibility before.
Some are exempt from the fee, including those who receive VA compensation for a service-connected disability and the surviving spouse of a veteran who died in service or from a service-connected disability. Active duty Purple Heart recipients are also exempt.
Is a VA loan always the best mortgage for service members and veterans?
Not necessarily. If you're making a down payment of 20% or more, a conventional loan might end up being less expensive. A 20% down payment eliminates the PMI requirement on conventional mortgages. However, the Va funding fee will still have to be paid if you go with a VA loan. Talk with a loan officer to evaluate your options.
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Blake Real Estate Consultant
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