ABOUT

What Is A VA Loan?

A VA loan is a government-backed mortgage specifically designed for eligible veterans, service members, and qualifying surviving spouses. The U.S. Department of Veterans Affairs (VA) guarantees these loans, offering advantages like no down payment and less stringent requirements compared to conventional loans.

Common Types Of VA Loans

1. VA Home Purchase Loan: Standard mortgage backed by the VA.

2. VA Jumbo Loan: Exceeds conforming loan limits.

3. VA Renovation Loan: Funds home purchase and renovation.

4. VA Cash-Out Refinance: Converts home equity into cash.

5. VA Rate/Term Refinance: Refinances to lower rate or change mortgage term.

6. VA Interest Rate Reduction Refinance Loan (IRRRL): For existing VA loan holders to lower monthly payment and/or interest rate with fewer documentation requirements.

How Does A VA Home Loan Work?

The VA doesn't issue loans but determines eligibility and authorizes lenders. VA loans are non-conforming, providing flexibility in credit score requirements. They offer advantages like lower interest rates, lenient borrowing requirements, and no down payment at closing. Monthly mortgage insurance is not required.

Who Qualifies For A VA Loan?

VA loans are attractive for eligible individuals, often requiring no down payment and featuring lower interest rates. Lenient credit requirements make qualification easier, even with a poor credit history or a small down payment. To qualify, individuals must meet specific criteria related to their military service duration or be the spouse of a service member who lost their life in the line of duty or due to a service-connected disability. Criteria vary based on active service days and other factors outlined by the VA.

Certificate of Eligibility (COE) for VA Home Loans

A COE proves to your mortgage lender that you're eligible for a VA home loan. The required proof varies based on your status, whether you're an active-duty military member, veteran, surviving spouse, or meet other criteria for a VA loan.

Documents You’ll Need:

• Veterans: DD Form 214 (Certificate of military discharge)

• Active-Duty Service Members: Statement of Service

• Activated National Guard Members: DD214 and relevant activation documents

• Current/Former National Guard Members (Not Activated): Statement of Service and NGB Forms 22 and 23

• Discharged Members of Selected Reserve (Not Activated): Retirement Points Statement and proof of Honorable Service and Discharge

• Surviving Spouses: DD Form 214, marriage license, spouse’s death certificate, and appropriate VA forms

Applying for COE

Apply online through the VA’s eBenefits website or mail documents along with VA Form 26-1880.

Other VA Loan Eligibility Requirements

• Property Type: Must be a primary residence. Some condos and manufactured homes are eligible, subject to lender criteria.

• Credit Score: No specific minimum score, but lenders may set their own requirements.

• Income: Debt-to-income ratio is evaluated; no specific limits by the VA, but lenders may have their own criteria.

• VA Loan Limit: No set limit, but conventional loan limits apply. VA jumbo loans available for amounts up to $2.5 million with a 680 qualifying credit score.

• Down Payment and Assets: No down payment required, but lenders may have specific requirements.

Funding Fee

Most VA loan recipients must pay a funding fee, ranging from 1.25% to 3.3% of the loan amount. The fee for VA Streamline refinances is reduced to 0.5%. Surviving spouses, disabled veterans, and Purple Heart recipients on active duty are exempt. The fee can typically be rolled into the mortgage.

Reserve Funds

Having reserves equivalent to 2 months' mortgage payments is advisable for post-loan closure financial stability.

VA Loan Benefits

• Lower Interest Rates: Typically lower than conventional mortgage rates.

• No Down Payment Requirement: Often no down payment needed.

• 100% Loan to Equity Value: Refinance up to 120% of home value with a VA Streamline loan.

• No Private Mortgage Insurance (PMI): Saving borrowers money.

• Lenient Borrowing Requirements: Higher debt-to-income (DTI) ratios accepted.

• Access to Equity: 100% access in a cash-out refinance.

Additional Benefits for Disabled Veterans

• Exemption from Funding Fees: Disabled veterans are exempt from funding fees.

• Access to Specially Adapted Housing (SAH) Grants: Up to $101,754 in 2022 for constructing or modifying homes.

• Property Tax Exemptions: Available in certain states.

How to Apply for a VA Loan: 6 Steps

1. Secure a Certificate of Eligibility (COE): Obtain proof of military service.

2. Apply for Approval: Get preapproved to understand affordability.

3. Shop for a House: Find a home meeting VA’s Minimum Property Requirements.

4. Make a Purchase Offer: Put in an offer, negotiate, and draft a sales contract.

5. Undergo VA Appraisal and Underwriting: Lender evaluates finances, and VA conducts a strict appraisal.

6. Close on Your New Home: Sign documents and receive the keys once approved.

The Bottom Line: Is a VA Loan Right for You?

A VA loan is a valuable benefit for qualifying military members, offering advantages like lower interest rates, no down payment requirement, and lenient borrowing requirements. It can make homeownership more affordable.

VA Loan Forbearance

For service members facing financial stress, VA offers options like VA IRRRL (Streamline loan) and loss mitigation options. These include repayment plans, loan modifications, private sales, short sales, and deed in lieu of foreclosure.

Refunding and Beware of Unscrupulous Lenders

• Refunding: The VA can refund loans when lenders cannot provide satisfactory forbearance options.

• Unscrupulous Lenders: VA combats churning by requiring seasoning, ensuring borrowers make at least six consecutive, timely payments before refinancing.

How Many Times Can You Use a VA Loan?

Eligible individuals can use their VA loan benefit as many times as needed throughout their lifetime, provided they qualify with a lender. It's even possible to have more than one VA loan simultaneously under certain circumstances, such as receiving permanent change of station (PCS) orders.

VA Loan Entitlement

Your VA loan entitlement is the amount the VA will guarantee for your loan. It can be categorized into full entitlement and reduced entitlement.

• Full Entitlement: Available if you've never had a VA loan or have fully restored your entitlement.

• Reduced Entitlement: Applies if you currently have a VA loan or defaulted on a previous one.

VA Mortgage Rates Overview

VA loans, non-conforming mortgages guaranteed by the VA, offer favorable terms like no down payment and competitive interest rates. Private lenders issue VA loans, and the VA sets no specific rates, allowing for borrower comparison among lenders.

Property Requirements for VA Loans

Properties must meet specific requirements to ensure safety and sanitation, such as functioning mechanical systems, heating, and good roof condition. VA loans are applicable for primary residences, not for vacation or rental properties.

Factors Determining VA Home Loan Rates

• Economic Conditions

• Credit Score

• Debt-to-Income Ratio (DTI)

• Down Payment

• Loan Term

VA Home Loan vs. Conventional 30-Year Fixed Mortgage Rates

VA home loan rates tend to be 0.25% to 0.42% lower than conventional 30-year fixed-rate mortgages, offering potential long-term savings for borrowers.

Pros and Cons of VA Home Loans

Pros:

• Low Interest Rates

• Easy to Meet Requirements

• No Down Payment

• No Insurance Required

• Refinancing Options

• Flexible DTI Requirements

Cons:

• Strict Eligibility

• Primary Residence Requirement

• Closing Costs

• Funding Fee

• Finding the Right Lender

FAQs About VA Mortgage Rates

1. Are VA mortgage rates better than conventional loan rates?

   • Yes, typically between 0.25% and 0.42% lower.

2. Can I lower my interest rate by refinancing my VA loan?

   • Yes, through a VA Streamline refinance.

3. Does my lender set my VA mortgage rate?

   • Yes, lenders set their own rates.

4. How can I get the best VA loan interest rates?

   • Good credit is crucial for the best rates.

The Bottom Line: VA Loans Come With Lower Mortgage Rates

VA loans offer a range of benefits, including lower interest rates and no down payment, making them an attractive option for eligible military service members, veterans, and their spouses. Understanding both the advantages and limitations helps borrowers make informed decisions about their home financing options.