What Is a VA Loan and How Can You Be Eligible for It?

Are you a home buyer looking to finance your dream house? If so, you must consider a VA loan. 13% of veterans who are homeowners have used the benefits of VA loans. 
Unlike other mortgages, VA loans allow you to purchase a home with a 0% down payment. This can significantly reduce the upfront cost of buying a home. Besides this, VA loans typically offer competitive interest rates compared to conventional loans.

What Is a VA Loan?

VA loans are a mortgage program offered by the US Department of Veterans Affairs (VA). It is a home loan for veterans. It is part of the military benefits for qualified borrowers, like veterans and national guards, based on their service period.

VA loans offer easier credit score requirements, debt-to-income ratios, and zero down payment for veterans.

The application process is similar to other housing loans but with simpler conditions. Moreover, the VA guarantees the lender a specific dollar amount if ever the borrower fails to repay the loan.

How Does a VA Loan Work?

VA loans offer attractive terms and lower rates, as the VA provides a guarantee to the lender. Borrowers can choose between fixed and adjustable rates, but the latter comes with some risk.

To apply, you can contact a lender of their choice. However, you must compare offers from multiple VA home loan lenders.

What Is the Eligibility Criteria for a VA Loan?

The VA home loan eligibility includes:

• Credit Score: The VA does not require a minimum credit score, though the lender might have a cutoff limit.
• Funding Fee: The loan borrowers are required to pay a one-time funding fee. It is usually 1.4-3.6% of your loan amount. Surviving spouses and disabled veterans are exempted from this.
• DTI: The DTI (debt-to-income) ratio measures the ability of the borrower to return the loan amount. The VA has no limit regarding this but the lender most likely will.
• Income: It is the amount of cash you have each month eliminating basic living funds. The VA sets the limit based on your living conditions and the number of members in your family.
• Reserve Funds: Though not required, it is preferred if you can show some residual funds in your bank to prove that you will be able to pay back.
• Federal Debt: Your loan will be rejected if you have defaulted on any prior loans. Such as student loans or prior VA loans.

» Real Estate Market Updates: Do some research before venturing into the buyer’s market.

What Are the Different Types of VA Loans?

There are 4 basic types of VA loans offered, mostly based on the qualifications and interests of the mortgagor.

• Purchase Loans: VA-backed purchase loans prompt lenders to offer competitive interest rates. This can help build, buy, or renovate a home without making down payments.
• Native American Direct Loan (NADL): This loan is eligible only if you or your spouse is a Native American besides being a veteran. You can also take a NADL over existing loans to reduce the interest rate.
• Interest Rate Reduction Refinance Loan (IRRRL): This loan is for refinancing a current loan to reduce monthly mortgage payments. It can even help to stabilize your loan costs.
• Cash-out Refinance Loan: It is the type of loan that lets you take a new loan and replace an existing one under different terms. You can even turn a non-VA loan into a VA loan.

How Do You Apply for a VA Home Loan?

Here are some steps on how to apply for a VA loan:

1. Check Your Eligibility: The first step is to check if you are eligible for this loan which includes being an active-duty service member, veteran, or surviving spouse. Then you can apply for a VA certificate of eligibility.

2. Apply for VA Home Loan Pre-Approval: Obtaining pre-approval for a loan is a smart move that can streamline your process, regardless of the type of loan you choose.

3. Take the Help of an Agent: With the help of an agent, the process can be made smoother and more manageable.

4. Make an Offer: If you have found your dream home then go ahead and put in an offer. The negotiations come after that.

5. Find a Lender: Once you have reached a mutual decision on the amount you require, you should find a lender that suits your needs.

6. Get Your Finances Checked: Underwriting is also an important process done by the lender, who checks your finances for proof of VA eligibility.

7. Sign the Documents: If the appraisal and underwriting are successful, you will then move forward to closing. This is where you sign the final paperwork and receive the keys to your new home.

Pros and Cons of VA Home Loans

As the government gives a guarantee there are multiple pros and cons to this loan, like:

Pros

• VA loan rates are comparatively lower.
• There is no downpayment requirement. 
• Private mortgage insurance can be overlooked.
• VA loans have lenient borrowing criteria.
• You have access to almost 100% of your equity.

Cons

• VA loans can only be used to finance a primary residence.
• The interest rate and terms may vary based on lenders.
• You have to pay VA funding fee.

Can You get a VA Loan as a Non-Veteran?

No, the VA loans are exclusively for qualified military personnel.

However, there are other options like USDA loans, conventional loans, and FHA loans. These options offer requirements of lower credit scores and low down payment. But you have to pay mortgage insurance.

» Buying a House with Bad Credit: Wondering if you can buy a house despite bad credit? Read more to know.

How to Qualify for a VA Loan?

The VA home loan qualifications vary based on the service type and period:

1. Service Members

Service members who meet the active service duty requirement can apply for this loan. That is continuous service, without a break, for 90 days.

2. Veterans

The eligibility for a veteran is based on the period of war in which you served. However, you can still apply for a VA loan if you have been discharged from war because of:

• Service-connected disability
• Hardship
• Reduction in force

The minimum number of days of service that you have to complete are:

3. National Guards

The national guards who have been in service for at least 90 days after August 2, 1990, meet the minimum requirement.

For all other periods, you can either have 6 creditable years of service from which you were honorably discharged/retired. Alternatively, you should have at least 90 days of non-training active duty, out of which 30 were consecutive days.

4. Reserve Members

Similar to national guards, the reserve members who have had at least 90 days of active duty after August 2, 1990, meet the minimum requirement.

The minimum requirement otherwise is at least 90 days of non-training or 6 creditable years in service. Unless you were discharged honorably, retired, or still serving, the only other eligibility would be if you were transferred to Standby Reserve.

5. Surviving Spouses

As the spouse of a Veteran, you can apply for a VA loan, if any of the following holds for you.

• Missing in action.
• Is a prisoner of war.
• Died while in service or from a service-related disability and you didn’t remarry.
• Died while in service or from a service-related disability and you didn’t remarry until you were over 57 years old or before Dec 16, 2003.
• He/she was disabled but died due to other causes.

Bottom Line

VA Loans offer many benefits if you are eligible for it. These loans give active duty members and war veterans a chance to apply for a mortgage.

It is a good option for those looking for veteran home loans. However, your financial situation may change the benefits you seek.

» Are VA Loans Assumable? Read to know more.

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