In this guide, we will cover VA home loans. VA home loans are hands down the best owner-occupant primary home mortgage program. However, it would be best if you met the mortgage guidelines of the Veterans Administration. Ethel Matthews, a dually licensed realtor, and licensed loan officer, explains about VA home loans:
If you’re a veteran, surviving spouse, or active-duty service member, you may wonder if you qualify for a VA loan. VA loans are special loans designed specifically for veterans and their families. They are often touted as an affordable and accessible way for veterans to own a home.
How exactly do VA home loans work, and what are the advantages and limitations of this type of loan? In this comprehensive guide, we’ll walk you through everything you must know about VA loans, from understanding what they are to how they work, comparing them with traditional loans, and much more. Whether you intend to buy your first home or refinance a current mortgage, this guide will help you understand the VA home loans’ ins and outs.
What are VA Home Loans
You may be duly eligible for a VA loan if you’re a veteran, active-duty service member, or surviving spouse. VA home loans are outstanding mortgage loans guaranteed by the United States (U.S.) Department of Veterans Affairs (VA). The primary purpose of VA home loans is to make homeownership more accessible to veterans, active-duty personnel, and eligible surviving
spouses.
Eligibility Requirements for Obtaining VA Home Loans
To be duly eligible for a VA loan, you must meet specific requirements set by the VA. Below are the basic eligibility requirements. Dale Elenteny of Gustan Cho Associates explains about Certificate of Eligilibility.
Military service: You must be a veteran, active-duty service member, or eligible surviving spouse of a veteran. The length and type of your military service will determine your eligibility. For example, veterans must have served at least 24 months of active duty.
You must obtain a COE from the VA confirming your eligibility for a VA loan. You can request a COE online or through your lender. Lenders will review your credit score and income to determine if you qualify for a VA loan. Although no minimum credit score is required to qualify for a VA loan, most lenders approve a credit score of at least 620.
VA Guidelines on Property Requirements
Property requirements: The home you plan to buy must meet specific property requirements, such as being safe, sanitary, and structurally sound. The VA will also require an appraisal of the property to determine its value.
Benefits of VA Loans
VA loans offer several benefits, making them an attractive option for eligible borrowers. This section will review some of the most significant benefits of VA home loans.
One of the most significant benefits or advantages of VA home loans is that they do not require any down payment.
This means eligible borrowers can purchase a home without saving tens of thousands of dollars for a down payment. This feature has helped many veterans and active-duty personnel become homeowners and realize their dreams of homeownership.
VA Guidelines on Mortgage Insurance
Unlike most other mortgage loans, VA loans do not require mortgage insurance (MI). MI is a type of insurance required by lenders that borrowers must pay when they put less than 20% down on a home. With VA loans, the VA guarantees a portion of the loan, eliminating the need for PMI. This can save borrowers hundreds or even thousands of dollars throughout the loan.
Mortgage Rates on VA Home Loans
Another advantage of VA home loans is that they typically offer lower interest rates than conventional loans. Wendy Lahn of Gustan Cho Associates explains mortgage rates on VA home loans.
VA home loans generally have lower rates versus conventional loans because the VA guarantees a portion of the loan amount, which lessens the risk for lenders and allows them to offer borrowers lower rates. In some cases, the interest rate on a VA loan can be more than 1% lower than a conventional loan.
VA home loans are outstanding mortgage loans partially guaranteed by the United States (U.S.) Department of Veterans Affairs (VA). This section will walk you through how VA loans work, from application to closing.
Application to Closing Mortgage Process on VA Home Loans
Here are the basic steps involved in obtaining a VA loan. Determine eligibility: Before applying for a VA loan, you must determine if you are eligible for the loan program. Eligibility requirements vary based on your military service history.
Obtain a Certificate of Eligibility (COE)
If you are eligible for a VA loan, the next step is to obtain a COE from the VA. This certificate confirms your eligibility for the loan
program and must be submitted with your loan application.
The lender will schedule a closing once the appraisal is complete and all necessary documents are submitted. You’ll sign the loan documents at the closing and pay any required fees and closing costs.
Once you have a COE, you can start shopping for homes and get pre-approved for a VA loan. During this process, the lender reviews your credit score, income, and other financial information to determine how much you can borrow.
Property Appraisal on VA Home Loans
The lender must order an appraisal to ensure that the property you want to purchase is worth the amount you’re borrowing. This appraisal is conducted by an independent appraiser who will assess the property’s value.
Credit Score Guidelines on VA Home Loans
The higher your credit score, the lower the interest rate you’ll receive. Several factors can impact the interest rate you receive on a VA loan. In the following paragraphs, we will discuss some of the most critical factors on VA home loans.
VA Funding Fee on VA Home Loans
VA home loans come with a funding fee, a one-time fee that borrowers pay to the VA. The funding fee is used to offset the cost of the VA loan program.
The term of your loan can also impact the interest rate. In general, longer-term loans will have higher interest rates. Your loan type, such as a fixed-rate or adjustable-rate mortgage, can also impact the interest rate.
The funding fee amount varies based on numerous factors, such as the loan type, the down payment amount, and whether the borrower has used the VA loan program. The funding fee generally ranges from 1.4% to 3.6% of the loan amount.
Maximum Loan Amount on VA Home Loans
Your area conforming loan limit determines the maximum amount you can request for a VA loan. This limit varies by location and is set by the Federal Housing Finance Agency (FHFA).
In most areas, the limit for 2022 is $726,200 for a single-family home. However, in high-cost areas, the limit can be as high as $1,089,300. VA home loans can only be used for buying, building, or improving a home.
Here’s a breakdown of how VA loans can be used. Purchasing a home: If you want to buy an existing home you plan on living in as your primary residence, you can use a VA loan to finance the purchase. However, the home must meet specific safety, sanitation, and structural requirements and be move-in ready.
VA New Construction Loans
VA home loans can also finance construction if you want to build a new home from scratch. You can work with a builder to construct a new home or act as your general contractor, an owner-builder." Note that the VA provides additional requirements for owner-builders.
Improving a home: If you own a home, you can use a VA loan to help finance improvements or repairs. Known as a VA renovation loan, you can use this type of loan to make a wide range of improvements to your home, including energy-efficient upgrades, accessibility improvements, or remodeling projects.
Why VA Guidelines on Co-Ops and Non-Real Estate Businesses
Finally, it’s important to note that VA home loans are unavailable for co-op units or non-real estate businesses. VA home loans are explicitly intended to help eligible borrowers purchase or improve their homes for their primary residence.
Non-traditional property loans are not available for other purposes, such as investing in rental properties or shares in co-op units. Borrowers cannot use a VA loan to buy a vacation home or a non-real estate business. Additionally, VA loans cannot be used to purchase investment properties or vacation homes.
It’s important to note that VA home loans have specific terms and conditions determining their intended use. The primary purpose of a VA loan is to provide eligible borrowers with affordable home financing for their primary residence. Any use of the VA loan that does not meet these requirements is not allowed.
VA Home Loans vs. Traditional Mortgages
When buying a home, many financing options are available to borrowers. Traditional loans, such as conventional, FHA, and USDA, are popular options, but VA home loans offer some distinct advantages. This section will compare VA loans to other types and discuss their benefits and limitations.
Comparisons Between VA Home Loans Versus Other Mortgage Loans
Conventional Loans: Conventional loans are not supported by any government agency and require a down payment of at least 3-20% of the home’s purchase price. In contrast, VA loans do not require a down payment and offer the benefits of no private mortgage insurance (PMI) and lower interest rates.
FHA Home Loans
FHA loans are supported by the Federal Housing Administration (FHA) and require a down payment of at least 3.5% of the home’s purchase price. VA loans do not require you to pay a down payment, whereas FHA loans require a minimum of 3.5% down payment. FHA loans require lower credit scores and more lenient credit standards, whereas VA loans have fewer credit restrictions.
USDA Loans
USDA loans are offered to borrowers in rural areas who meet income requirements. USDA loans require no down payment but require the property to meet specific rural development criteria. VA loans, on the other hand, have no specific geographic requirements and can be used to purchase homes in any area.
Differences Between VA Loan Programs versus Other Traditional Loan Programs
The main difference between VA and traditional loan programs is that the U.S. Department of Veterans Affairs partially guarantees VA loans. This guarantee allows lenders to offer borrowers more favorable terms and conditions, such as no down payment, no PMI, and lower interest rates. Additionally, VA loan programs have specific eligibility requirements to help veterans, their spouses, active-duty service members, and their families.
Conclusion
In conclusion, VA loans are a great financing option for eligible veterans, active-duty service members, and their families looking to purchase, build, or improve a home. VA loans offer numerous advantages over traditional loans, including 100% financing, no private mortgage insurance (MI), and lower interest rates.
It’s essential to understand the limitations of VA loans, including the funding fee and specific property requirements. These requirements are in place to ensure that borrowers are purchasing safe and sound homes that will meet their needs. If you’re interested in a VA loan for your home financing needs, Gustan Cho Associates can help.
Our team of experts can help you go through the process and explain all the loan options and offers available. We’re committed to helping you get the home you need and deserve. Contact us today to get started.