13% of veterans who are homeowners have used the benefits of VA loans. Let’s take a look at what is VA loan and how to use it to maximum advantage.
What is a VA Loan?
VA loans are a mortgage program provided by the US Department of Veterans Affairs (VA). It is part of the military benefits for qualified borrowers, like veterans and national guards, based on their service period.
The upside to this type of loan includes lenient credit, debt-to-income requirements, and little to no down payments.
The application process is similar to normal housing loans, but with simpler conditions. The VA guarantees the lender a specific dollar amount if ever the borrower fails to repay the loan.
Can You get a VA Loan as a Non-Veteran?
No, the VA loans are exclusively for qualified military personnel. However, there are other loans that offer similar concessions.
USDA loans are for homebuyers in selected rural areas and towns offered by the US Department of Agriculture. The benefits include no down payment and lower interest rates.
The other option is FHA loans offered by the Federal Housing Administration. You can opt for this even with a lower credit score and there are low down payment options. 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.
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): You are eligible for this only if you or your spouse is a Native American besides being a veteran. The NADL program will help you take a loan to buy or build a home. You can also take a NADL over existing loans to reduce the interest rate.
- Interest Rate Reduction Refinance Loan (IRRRL): This type of 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.
VA Loan Eligibility
The eligibility criteria differ based on the service type and period.
1. Service Members
Service members that meet the active service duty requirement can apply. 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 had 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:
| Duration | Served In | Minimum Service Required |
|---|---|---|
| Sept 16, 1940 to July 25, 1947 | WWII | Total 90 Days |
| July 26, 1947 to June 26, 1950 | Post WWII | 181 Continuous Days |
| June 27, 1950 to Jan 31, 1955 | Korean War | Total 90 Days |
| Feb 1, 1955 to Aug 4, 1964 | Post Korean War period | Total 181 Days |
| Nov 1, 1955 to May 7, 1975 | In the Republic of Vietnam | Total 90 days |
| Aug 5, 1964 to May 7, 1975 | Vietnam War | Total 90 days |
| May 8, 1975 to Oct 16, 1981 | - | 181 Continuous Days |
| May 8, 1975 to Sept 7, 1080 | Post-Vietnam War period | 181 Continuous Days |
| Oct 17, 1981 to Aug 1, 1990 | - | 24 Continuous Months OR Full Period of 181 days |
| Sept 8, 1980 to August 1, 1990 | - | 24 Continuous Months OR Full Period of 181 days |
| Aug 2, 1990 to the present | Gulf War to Now | 24 Continuous Months OR Full Period of 90 days |
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 time 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 true for you in regard to your military spouse.
- 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 totally disabled but died due to other causes.
6. Others
There are also some other conditions under which you can apply for a VA loan:
- You are a US citizen who served in the armed forces allied with the US during WWII.
- You are a:
- Public Health Service Officer
- Cadet of US Service Academies
- Midshipman of US Naval Academy
- National Oceanic & Atmospheric Administration Officer
- WWII Merchant Seaman
What Do I Need to Qualify for a VA Loan?
- 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.
- Income: 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.
- Residual 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.
How to Apply for VA Loans?
Here are some steps on how to apply for VA loans:
1️⃣ Acquire a certificate of eligibility: The first step is to check if you are eligible for a VA loan and apply for a certificate of eligibility.
2️⃣ Get pre-approval for a loan: It is wise to get pre-approval for a loan as it accelerates your process, no matter the procedure you choose.
3️⃣ Look for your ideal house: This could be your toughest step. You could get the assistance of an agent to smoothen the process.
4️⃣ Put an Offer on the House: If you have found your dream home then go ahead and put in an offer. The negotiations come after that.
5️⃣ Find a lender who matches your VA qualifications: Once you have reached a mutual decision on the amount you require, you should find a lender that suits your needs.
6️⃣ Go through VA appraisal and underwriting: VA appraisals are tougher than conventional ones. They will check if your property is safe and move-in ready with minimal repairs. Underwriting is a process done by the lender, who checks your finances for proof of VA eligibility.
7️⃣ Finish the procedures and move in! Congratulations you have made it to the final step after completing the rigorous process.
» Real Estate Market Updates: Do some research before venturing into the buyer’s market.
VA Loan Benefits
As the government gives a guarantee there are multiple benefits to this loan, like:
- Interest rates are typically lower
- No down payments required
- Private Mortgage Insurance can be overlooked
- Lenient borrowing criteria
- You have access to almost 100% of your equity
» Mortgage Lenders in the US: Check out the top mortgage lenders in the US.
Final Note
VA Loans have many benefits once you prove your eligibility. It gives active duty members and war veterans a chance to apply for a mortgage.
It is a good option for veterans looking for their dream homes. However, your individual financial situation may change the benefits you seek.
FAQs
1. What is the Purpose of a VA Loan?
VA loans essentially help qualified military borrowers get favorable loan terms. At an interest rate that is lower than the rates charged on other mortgage loans.
2. What is the Difference Between a VA Loan and a Regular Loan?
A regular loan has rigorous qualifications that need to be met before being considered by a lender. However, VA loans skip a few steps in the same process and make it easier to approach a lender. Including almost no down payment, credit score, and debt-to-income.
3. What is the Minimum Credit Score for a VA Loan?
There is no minimum credit score when you apply for a VA loan, however there might be a requirement from the lenders side, which will vary based on the lender.
4. What is the Interest Rate on a VA Loan?
The current interest rate is 6.25% for a VA purchase loan.
5. What is the Certificate of Eligibility (COE)?
A Certificate of Eligibility is the approval from the VA that you get once you prove that you have met all their requirements. You can request for a COE online on the eBenefits website. Read more about VA certificate of eligibility here.
Also Read
- Cost to Build a House: Check out our blog on how much it costs to build a house.
- Mortgage Brokers: Here is a list of mortgage brokers near you.
- Closing Costs for Buyers: Find out the closing costs for buyers in the U.S.
- How to Buy a House: Here is a guide to help first-time buyers in purchasing a home.
- Buyer Closing Cost Calculator: Closing costs can sometimes be confusing, this calculator will help to find an accurate rate of closing costs for buyers.
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