VA Loan
Why Do A VA Loan?
A VA loan is a top benefit of military service for eligible veterans, service members, and surviving spouses. It allows you to qualify for a low-cost mortgage when you’re looking to purchase or refinance, even if your credit isn’t perfect. If you currently serve in the military or are a veteran, you’re potentially eligible for a VA loan. This article will explain what you need to know about these special government-backed loans, including rates, qualification requirements and special benefits for disabled veterans. The VA offers specific guarantees to private lenders that handle VA loans. Because of these guarantees, lenders will issue loans to candidates with no down payment or less stringent requirements than other loans.
How Do VA Loans Work?
The VA does not issue VA loans, but they do determine who qualifies for one and which lenders issue them. There are several types of VA loans, and they pose less of a risk to lenders because they’re backed by a government agency.VA loans are considered non-conforming loans because of their easier credit requirements. They offer many advantages over conventional loans, including lower interest rates, more lenient borrowing requirements and no down payment due at closing. VA loans also never have monthly mortgage insurance.
Who Qualifies For A VA Loan?
Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage programs.
Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:
- You’ve served 181 days of active service during peacetime.
- You’ve served 90 consecutive days of active service during wartime.
- You’ve served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.
- You’re the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions.
What Is A Certificate of Eligibility (COE)?
A COE is a document that shows your mortgage lender that you’re eligible for a VA home loan. To get a COE, you need to demonstrate proof of service. The proof you need to submit varies based on whether you’re an active-duty military member, a veteran, a surviving spouse, etc.
If you’re eligible, BUYorREFI can help you secure your COE.
Other VA Loan Eligibility Requirements
Once you’ve verified that you meet the service requirements for a VA loan, you need your income, assets, and credit to check out, as well as the property you’re buying.
Property Type
VA loans can also be used on condos and manufactured homes, but not all lenders will finance loans for these property types. If you’re getting your loan with BUYorREFI, you can get a VA loan for a condo, but not for a manufactured home.
The property you buy must be your primary residence within 60 days of purchase. You can’t use a VA loan for a vacation or investment property, but you can use it to buy a one-to-four family home if the eligible member uses it as a primary residence.
Credit Score
The VA doesn’t require a specific minimum credit score for VA loans, so the credit requirement varies by lender. The minimum median credit score for a VA loan from Rocket Mortgage is 580.
Income
Your lender will evaluate your debt-to-income ratio (DTI) when considering your ability to pay back the loan. Your DTI represents how much of your monthly income goes toward paying back debt. The VA does not set limits on your DTI, although some lenders might.
VA Loan Limit
The VA doesn’t limit how much you can borrow, but there is a cap on the VA’s guarantee. That’s the amount of money they’ll cover if you default on your loan. According to the VA, the loan limit for a no-down-payment VA loan is $548,250 in most of the country.
Certain high-cost areas have higher limits. If you need a loan higher than that amount, you may be able to look into a VA jumbo loan, which doesn’t require a down payment and may offer a lower rate than regular jumbo loans.
Down Payment And Assets
VA loans are one of the few loan options that don’t require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.
For example, they may require that you have a higher credit score if you’re putting down less than 10%. The requirement to purchase a home with a VA loan through BUYorREFI with no down payment is still a median of 580.
Funding Fee
Most people who get a VA loan are required to pay a funding fee, which covers the cost to taxpayers. The VA funding fee ranges from 2.3 – 3.6% of your loan amount.
The cost of the fee is determined by your type of service, the size of your down payment, whether it’s the first-time you’re getting a VA loan and whether you’re buying or refinancing the property. Surviving spouses, veterans who receive disability and Purple Heart recipients serving in an active-duty capacity are exempted from funding fees.
Don’t worry, though. In most cases, if you don’t have the money up front, the VA funding fee can be rolled into your mortgage.
Reserve Funds
Most loans require you to have additional money in the bank that you’re not using for upfront costs. This ensures that you’ll be able to make payments once your loan closes. The amount of leftover funds you’ll need is determined by the cost of your mortgage payment, including principal, interest, taxes and insurance. Although it’s not always required, it’s a good idea to show reserves equal to 2 months’ worth of mortgage payments.
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VA Loan Benefits
VA loans have many benefits over conventional loans. Among them are potentially lower interest rates, no down payment requirement, no mortgage insurance, easier credit requirements and additional pluses for disabled veterans.
VA Loan Rates Are Typically Lower
Because they’re backed by the government and carry lower risk for lenders and investors, VA loans typically have lower interest rates than conventional loans, particularly for borrowers with credit issues. Learn more about VA loan rates here.
VA Loans Don’t Require A Down Payment
VA loans are one of two major mortgage options (the other is the USDA loan for rural home buyers) that don’t require a down payment. This means you’ll need less money up front, being able to save the extra or spend it on home furnishings and projects.
100% Loan To Equity Value
You don’t need any equity to refinance your VA loan into a lower rate. In fact, with a VA Streamline loan, you can refinance up to 120% of your home’s value for changing your term or lowering your rate. This means you can refinance even if you owe more on your home than it’s worth.
No Private Mortgage Insurance (PMI)
VA loans don’t require PMI. PMI is mortgage insurance on conventional loans that a lender may require you to pay if you don’t put 20% down. Not having to pay PMI can save you between 0.5% and 1% of your loan amount per year until you reach 20% equity.
Lenient Borrowing Requirements
VA loans allow you to qualify with a higher DTI than any mortgage program from one of the major mortgage investors. The limit is 50% with an adjustable-rate mortgage (ARM), but with a fixed-rate mortgage, that limit can go as high as 60% with a median 620 credit score.
If your score is at least 580 but less than 620, your mortgage payment can't account for more than 38% of your gross monthly income. Additionally, your total DTI can be no higher than 45%.
The VA loan is the only program that lets you access 100% of your equity in a cash-out refinance, a key difference from other options. BUYorREFI requires your credit score to be at least a median of 680 or higher to do this. Otherwise, you can take out up to 90% of your home equity if you have a median score of 620 or better.
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How To Apply For A VA Loan: 6 Steps
Applying for a VA loan is a lot like applying for any other mortgage in many respects. Take these 6 steps into consideration when applying.
1. Secure A Certificate Of Eligibility (COE)
You’ll need this to be eligible for your VA loan. You’ll need to provide proof of your military service based on your status.
VA-approved lenders, like BUYorREFI, can help you get your VA certificate of eligibility quickly with proof of service.
Tell your lender you need your certificate of eligibility early in the process so they can help you get it.
2. Get Pre approved
When buying a home, get preapproved early on. The approval will give you a baseline for determining how much you can afford. In addition, when you make an offer on a house, you’ll find sellers tend to take offers more seriously if a letter of preapproval is attached.
3. Shop For A House
Finding a house with a VA loan is like finding a house with any other loan option. Whatever property you buy must meet the VA’s Minimum Property Requirements, or MPRs. MPRs ensure the home is safe, structurally sound and sanitary. These requirements vary according to known risks in an area.
4. Make A Purchase Offer
Once you find a home you like in your price range, put in an offer to buy the home. The seller may accept your offer, reject the offer or counteroffer. Once you and the seller agree on a price, a real estate agent or attorney can help draw up a sales contract.
5. Undergo VA Appraisal And Underwriting
Underwriters from your lender assess your finances and make sure you qualify for a VA loan. The VA will also require an appraisal before they approve the loan. VA appraisals are stricter than conventional loans. During a VA appraisal, the appraiser will check that the home meets the VA’s MPRs and is sanitary, structurally sound and move-in ready with minimal repairs.
6. Close On Your New Home
Once the VA appraiser says your new home is safe and sound, it’s time for you to sign on your new home, get your loan and receive the keys to your new property.
The Bottom Line: Is A VA Loan Right For You?
A VA loan is an important benefit earned by our military. If you qualify, you can get a great interest rate with no money down, even if you have past credit problems.
If you feel like you’re ready apply with BUYorREFI Financial today!
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