VA loans are an excellent benefit for the military, veterans, and their eligible surviving spouses. They allow you to qualify for loans with more favorable terms, compared to many other loans, if you are looking to buy or refinance a home, even if you do not have perfect credit.
If you are currently serving in the military or are a war veteran, you are likely eligible for a VA loan. Here’s what you need to know about these special government-backed loans.
What is a VA loan?
VA loans are government-backed loans given to eligible military and active duty military veterans. These loans have more benefits than conventional loans, including lower interest rates, less stringent loan requirements, and the ability to not pay a down payment at closing.VA loans are a type of military loan that mortgage lenders give to veterans and their eligible spouses. They are backed by the government, specifically by the Department of Veterans Affairs (VA). The VA does not give VA loans, but it does determine who can qualify for them and which lenders can give them. This means that VA loans pose a lower risk to lenders because they are backed by a government agency.
For eligible people, VA loans are very interesting because there is no down payment required. They also have lower interest rates than many other types of home loans that can be obtained for similar terms. Also, they don’t have monthly mortgage insurance. Although lenders set their own requirements for some qualifying issues, VA loans also have less stringent credit requirements than many other mortgage programs.
Who is eligible for a VA loan?
Not everyone who has served in the Armed Forces qualifies for a VA loan. You must meet at least one of these requirements to qualify:
- Have completed 181 days of active duty in a period of peace.
- Have completed 90 calendar days of active duty in a period of war.
- Have completed more than 6 years of service in the National Guard or Reserve.
- Being the spouse of a military man who lost his life in the line of duty or due to a service-connected disability. You generally cannot have remarried, although there are exceptions.
What is a Certificate of Eligibility (COE)?
A Certificate of Eligibility (COE) is a document that tells your mortgage lender that you are eligible for a VA loan. To obtain a COE, you must provide proof of service. The proof that you must present varies depending on whether you are an active duty military man, a war veteran, a surviving spouse, etc.If you are eligible, Quicken Loans® can help you achieve your COE.
Veterans must submit DD form 214. This form is a certificate verifying your discharge from the military. You can request a DD 214 form online through the eVetRecs record system.
Active duty military
If you are an active duty military officer, you will need a declaration of service signed by your Personnel Officer, Auxiliary, or Unit Commander. The declaration of service must have your full legal name, social security number, and date of birth. You should also document the date you entered duty, information on any period of discharge from duty, and the name of the commander presenting the information. Ask a superior for a declaration of service before requesting your COE.
Current member of the National Guard or Reserve
Current members of the National Guard or Reserve also need a declaration of service. The requirements for the declaration are the same as for the active military.
Discharged member of the National Guard
Members discharged from the National Guard must have Form NGB 22, Separation Report and Service Record for each tour of duty in the National Guard. You must also have the NGB 23 form, the Retirement Points Register and proof of the characteristics of the service.
National Guard units belong to individual states, so there is no central file of records. Contact the National Guard Deputy General’s office in the state where you served and request forms NGB 22 and 23 to obtain your COE.
Member unsubscribed from the Selected Reserve
You must have a copy of your Annual Retirement Points Statement if you are a member discharged from the Selected Pool. You also need an honorable proof of service and discharge.
Surviving spouses who do not receive dependency benefits can get a COE as long as they have the spouse’s DD Form 214, marriage certificate, and the spouse’s death certificate. You must also print and complete VA Form 21P-534-ARE, which is on the VA benefits website.
Surviving spouses receiving dependency benefits should print and complete VA Form 26-1817. You can download the free form from the VA benefits website.
When you have the vouchers, you will have a few options to request your COE. You can apply online at the VA eBenefits website. You can also mail in the documents and a completed VA Form 26-1880.
Other requirements for VA loans
When you have verified that you meet the service requirements for a VA loan, you must ensure that your income, assets and credit, as well as the property you will buy, are adequate.
Kind of property
VA loans can also be used for condos and manufactured homes, but not all lenders finance loans for these types of properties. If you are applying for your loan with Rocket Mortgage®, you can get a VA loan for a condo, but not for a manufactured home.
The property you buy must meet the VA’s Minimum Property Requirements (MPR). Through the MPR, the good structural, safety and health conditions of the house are guaranteed. A VA appraiser will inspect the home to make sure it meets the MPRs. If the MPRs are not met, necessary repairs must be made before the loan can be closed.
The VA does not require a specific minimum credit score for your loans, so the credit requirement varies by lender. The minimum median credit score for a Quicken Loans VA loan is 620.
Your lender will evaluate your debt-to-income ratio (DTI) when looking at your ability to repay the loan. Your DTI represents the percentage of your monthly income that is used to pay debts.
Limit for VA loans
The VA does not restrict the amount you can borrow, but there is a limit on the VA guarantee, which is the amount of money it supports if you default on your loan. According to the VA, the limit for VA loans with no down payment is $ 548,250 in most parts of the country. Some expensive areas have higher limits. If you need a loan for more than that amount, you can look for a VA jumbo loan, which does not require a down payment and can give you a lower rate than normal jumbo loans.
Down payment and goods
VA loans are one of the few loan options that do not require a down payment. However, your lender may have specific requirements for a no down payment VA loan. For example, it can require you to have a higher credit score if you will pay less than 10% as a down payment. The requirement to buy a home with a VA loan in Quicken Loans with no down payment remains a median score of 620.
It is important that you keep in mind that “no down payment” does not mean “no cost”. Here are some other costs to anticipate, even if you won’t be paying down payment:
Financing fee: Most people who get a VA loan must pay a financing fee, which covers the cost to taxpayers. The financing fee ranges from 1.25% to 3.3% (between 2.3% and 3.6% as of January 1, 2020) of your loan amount. The cost of the fee is determined by the type of service, the amount of your down payment, if it is the first time you have obtained a loan from the VA and if you will use it to buy or refinance. If you don’t have the money to pay in advance, it can be included in the loan amount in many cases.
Reserve funds: For most loans, you are required to have more money in the bank that you are not using for startup costs. This ensures that you can pay after the loan closes. The amount of remaining funds you will need will be determined by the cost of the mortgage payment, including principal, interest, taxes, and insurance. Although it is not always necessary, it is a good idea that you can show that you have reserves equal to the mortgage payments of at least 2 months.
VA loans vs. conventional loans: what are the benefits?
VA loans have many more benefits than conventional loans. For example, interest rates are lower, no down payment or mortgage insurance is required, it has fewer credit requirements, and it has more advantages for disabled veterans.
VA loan rates are often lower
Because they are backed by the government and pose less risk to investors and lenders, VA loans tend to have lower interest rates than conventional loans. The difference can be 0.25% or more.
No down payment is required for VA loans
Since the VA loan is one of the two main mortgage options for which a down payment is not required (the other is the USDA loan), you will have lower closing costs and can use what you would have paid as a down payment for furniture or future savings.
Plus, you don’t need home equity to refinance your VA loan for a lower rate. In fact, with a VA Streamline loan, you can refinance up to 120% of your home’s value to change the term or lower the rate. This means that you can refinance even if you owe more than your house is worth.
No PMI is required for VA loans
For VA loans, there is no PMI required, a type of conventional loan mortgage insurance that requires a monthly payment or a higher rate rather than prepaying mortgage insurance as part of closing costs. In this way, you can save between 0.5% and 1% of the loan amount per year during the first years of the loan, until you reach at least 20% of the accumulated capital.
VA loans have less stringent loan requirements
VA loans allow you to qualify with a higher DTI than any mortgage program from a major mortgage investor. Although the limit is 50% if you have an adjustable rate mortgage (ARM), the limit can go up to 60% for a fixed rate loan.
In addition, the VA loan is the only program that allows you to access 100% of your home equity in a cash-out refinance, a fundamental difference from other options. Quicken Loans requires your median credit score to be 680 or higher to do so. Otherwise, you can acquire up to 90% of the equity in your home if you have an average score of 620 or higher.
Extra benefits for disabled veterans
In addition to the standard VA loan benefits, disabled veterans can also access other benefits.
VA Financing Fee Waiver: Disabled Veterans are exempt from the VA Financing Fee, which means they do not have to pay any type of this fee at closing. To qualify for the exemption, you must currently receive some type of disability benefit, regardless of your level of disability.
It may not sound like much, but veterans or their surviving spouses can save thousands of dollars thanks to this exemption. For example, if you buy a $ 200,000 home, you will generally pay between $ 2,500 and $ 6,600 (between $ 2,800 and $ 7,200 as of January 1, 2020) in financing fees to the VA at closing. Disabled war veterans are totally exempt from paying this fee.
Access to subsidies for specially adapted housing: Do you have a motor or visual disability? You may qualify for a Specially Adapted Housing (SAH) Grant. SAH grants can be used to build a special home that is specifically designed to meet the needs of the disabled person, or they can be used to make modifications to a home to make it more accessible. They can also go toward the unpaid balance of an adapted home that you already purchased without the help of VA subsidies.
For 2019, you may qualify for a subsidy of up to $ 85,645 ($ 90,364 in 2020), and you can use the subsidy up to three times as long as you are eligible based on your disability. Since the SAH grant is not a loan, you do not need to pay back the money you receive from the government.
Access to Other Accommodation Allowances: Disabled Veterans may also qualify for a Temporary Residence Adaptation Allowance (TRA) to make modifications to their property and facilitate mobility if they live with a family member. Like SAH grants, you will not have to pay your SAH or TRA allowance, making them a very useful tool for war veterans with motor disabilities.
Property Tax Exemption: Property taxes are taxes you pay to your local community to fund things like libraries, fire departments, and local road and urban development projects. Property tax exemptions for disabled veterans can reduce the amount you must pay in property taxes.
These tax exemptions are not a federal program and vary by state, so be sure to contact your local VA office for more information on the type of exemptions you are eligible for. Some states offer an exemption for all veterans, while others restrict this benefit to veterans currently receiving disability payments. Disabled veterans are exempt from paying all property taxes in some states.
How to apply for a VA loan: 6 steps
Applying for a VA loan is very similar to applying for any other mortgage in many ways. However, there are some special considerations to keep in mind to know what to expect.
Get a Certificate of Eligibility (COE)
You will need this certificate to be eligible for your VA loan. You must provide proof of your military service according to your situation. Quicken Loans can help you verify your eligibility and obtain your certificate. VA approved lenders like Quicken Loans can help you get your certificate in no time with a proof of service.
Make sure to let your lender know that you need your certificate of eligibility early in the process to help you obtain it while you are looking for a home or waiting for the underwriting assessment.
When you’re in the process of buying a home or refinancing, you want to make sure you get approved as soon as possible. In particular, if you want to buy a home, the approval will give you a reference to determine how much you can afford.
Not all lenders can give VA loans. Quicken Loans can help you with your VA loan and may find an option that is right for you. Since the process will be easier if you know what you can pay up front, submit an application when you’re ready.
Look for a house
Finding a home with a VA loan should be the same as finding a home with any other loan option. However, in some states or areas in the states, they may require a pest inspection. In others, they will require a pest inspection only if the appraiser detects a pest problem. Whether you can afford this service or whether the seller will have to pay for it will depend on the state.
Also, the VA has the same types of requirements as FHA loans for lead-based paint. There are cases where you will have to remove the painting.
In addition to health and safety concerns, the only thing to keep in mind is that you have to occupy the property as your primary property. This means that, with some exceptions such as active duty, you must occupy the property within 60 days after closing. You cannot use a VA loan for vacation or investment property.
Make a purchase offer
When you find a home that you like and that is in your price range, make an offer to buy it. The seller can accept your offer, reject it or make you a counter offer. When you agree on a price with the seller, a real estate agent or attorney can help you write a contract.
Wait for the results of the appraisal and the risk assessment of the VA
Your lender’s underwriters evaluate your finances and make sure you qualify for a VA loan. The VA will also request an appraisal before approving the loan. VA loan appraisals are slightly different from the standard appraisals required for mortgages. When you buy a home with a private loan, the lender requires an appraisal because they need to know that they are not lending you too much money for the property.
VA appraisals are more stringent than conventional loans. At the VA appraisal, the appraiser will make sure the home is in good structural and healthy condition and ready for move-in with minimal repairs.
Close the purchase of your new house
When the VA appraiser says that your new home is in good condition, it’s time for you to sign the purchase, get the loan, and receive the keys to your new property.
Is A VA Loan Right For You?
In this article, we look at what the VA loan is and some of its key features. We’ve talked about who is eligible as a veteran, active duty military, or surviving spouse, how to obtain a certificate of eligibility, and other VA loan-related requirements.We have also compared a VA loan to a standard conventional loan and explained why most of the time a VA loan is probably the best option if you qualify. Finally, we have reviewed the basic steps to apply for financing and buy a home with a VA loan.
If you think you’re ready, apply for a VA loan with Quicken Loans today.