VA Loans: A Comprehensive Guide for Veterans

Introduction to VA Loans

A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The loan may be issued by qualified lenders. The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry).

We're here to make the VA home loan process a whole lot easier, with tools and expertise that will help guide you along the way, starting with our FREE VA Loan Qualifier.

We'll help you clearly see differences between loan programs, allowing you to choose the right one for you whether you're a first-time home buyer or a seasoned investor.

What is a VA Loan?

A VA loan is a mortgage option that enjoys government backing and is exclusively available to Veterans, active-duty service members, and surviving spouses. Unlike other mortgage programs, VA loans are not directly issued by the Department of Veterans Affairs but are instead provided by private lenders, such as mortgage companies and banks.

VA home loans can be used to purchase a variety of property types, including single-family homes, condominiums, multi-unit properties, manufactured houses, and even new construction. This versatility makes VA loans a valuable tool for eligible individuals looking to secure a place to call home. A minimum 580 credit score is needed to qualify.

VA Loan Benefits

Since its inception in 1944 as part of the original GI Bill of Rights, the VA loan program has provided essential support to millions of Veterans and service members, guaranteeing more than 28 million loans. VA loans function similarly to other home loans but come with a range of substantial benefits designed to simplify and make homeownership more accessible for those who have served our country.

Here are some of the most notable advantages of VA loans:

1. 0% Down Payment:

• One of the standout features of VA loans is the ability to purchase a home without a down payment, a signature benefit that has been a hallmark of the program since its inception. Eligible Veterans can acquire homes without the financial burden of a down payment, regardless of the property’s purchase price.
• In contrast, many other loan types often require a down payment, typically around 3% or more of the loan amount. For many Veterans and military families, saving such a lump sum can be a challenging and time-consuming task. With VA loans, individuals can opt to invest their available funds elsewhere.

2. Lower Interest Rates:

• VA loans consistently offer some of the lowest average interest rates in the market, a fact supported by data from Optimal Blue for the past few years. These lower interest rates can benefit Veterans in multiple ways.
• A reduced interest rate can make it easier for Veterans to qualify for larger loan amounts, and it also results in greater savings over the life of the loan, both in terms of monthly payments and overall costs.

3. Flexible Credit Guidelines:

• VA loans were originally created to expand access to homeownership, and they continue to fulfill this mission by employing more flexible and forgiving credit underwriting requirements.
• While credit score requirements may vary among lenders, VA loans often have lower minimum credit score requirements compared to other loan types. Additionally, VA loans don’t set strict limits on debt-to-income ratios, and they typically have shorter waiting periods following negative credit events, such as bankruptcy or foreclosure.

4. Closing Cost Limits:

• Financing a home purchase can involve various closing costs and fees. With VA loans, there are limits on how much lenders can charge Veterans for loan origination and processing.
• In VA transactions, sellers have the option to cover all of the buyer’s loan-related closing costs and provide concessions of up to 4 percent of the loan amount. Additionally, there are certain costs and fees that VA buyers are not permitted to pay.

5. No Private Mortgage Insurance (PMI):

• Unlike conventional loans, where buyers unable to make a 20% down payment are often required to pay for private mortgage insurance (PMI), VA loans do not necessitate a down payment or mortgage insurance. This results in significant savings for Veterans and enhances their homebuying budget.

VA Loan Eligibility

Eligibility for a VA home loan is based on specific criteria related to your service history, character of service, and, in some cases, your relationship to a Veteran. The U.S. Department of Veterans Affairs (VA) has established guidelines to determine who qualifies for a VA loan, and it’s essential to meet these requirements to take advantage of this valuable benefit.

Who is Eligible:

VA loan eligibility is extended to the following groups:

1. Veterans: Those who have completed their service in the Armed Forces of the United States, typically with an honorable discharge, are eligible for VA loans.
2. Active Duty Service Members: Current active-duty service members from all branches of the military are eligible for VA loans.
3. National Guard and Reserves: Members of the National Guard and Reserves can also be eligible, with certain conditions related to service duration.
4. Surviving Spouses: Some surviving spouses of deceased Veterans may be eligible for VA loan benefits, provided they meet specific criteria.

Service Requirements:

To be eligible, you generally need to meet specific service requirements:

• 90 Consecutive Days (Wartime): Veterans who served a minimum of 90 consecutive days on active duty during wartime periods are eligible.
• 181 Consecutive Days (Peacetime): For peacetime service, the requirement is 181 consecutive days of active duty.
• Guard and Reserve Service: Members of the National Guard and Reserves must typically serve for a minimum of 6 years to qualify for a VA loan. Alternatively, they may be eligible if they have completed 90 days of active service under Title 32 orders, with at least 30 of those days served consecutively.

Certificate of Eligibility (COE):

Lenders, such as Veterans United, can assist you in obtaining your Certificate of Eligibility (COE), a formal document issued by the VA. The COE confirms that you meet the eligibility guidelines necessary to secure a VA loan. Importantly, Veterans do not need to obtain this document before beginning the home loan process. Lenders can usually request it on your behalf.

How VA Loans Compare to Other Mortgage Loans

Every mortgage type has their advantages and disadvantages. Below you can see the main differences between a VA Loan, FHA Loan, and Conventional loan.

VA Loan

• Down Payment: 0% Down
• Minimum Credit Score: 580
• Mortgage Insurance: None
• Interest Rates: VA Loans have some of the best interest rates available to borrowers

FHA Loans

• Down Payment: 3.5%
• Minimum Credit Score: 580
• Mortgage Insurance: Upfront and Monthly
• Interest Rates: FHA Loans also have some of the best interest rates available

Conventional Loans

• Down Payment: 3% for first time home buyers and 5% for non first time home buyers
• Minimum Credit Score: 620
• Mortgage Insurance: Required when your down payment is less than 20%
• Interest Rates: Tend to be higher than VA and FHA loans

Understanding the different mortgage options is key to make sure you end with the right mortgage that fits your budget.

Types of VA Loans

The VA loans have a few different mortgage options available to veterans.

VA Purchase Loans

This allows veterans to purchase a new home with as little as 0% down. You can use it to purchase single family detached homes, condos, townhouses, and multi-family homes (2-4 units).

VA IRRRL

The VA Interest Rate Reduction Refinance Loan (IRRRL) is a simplified way to refinance your existing VA loan to get a better interest rate. They are also referred as a VA Streamlines. They are a faster, cheaper and more affordable way of refinancing your mortgage. They do not require an appraisal, income verification, have easier underwriting, and cheaper lender fees.

VA Cash-Out Refinance

A VA Cash-Out Refinance is way for homeowner’s to turn their homes equity into cash by refinancing their mortgage. You can pull up to 90% of your home’s value and are most commonly used for home improvements, debt consolidation, pay for your child’s school, money to live off of, etc.

We’re here to make the VA home loan process a whole lot easier, with tools and expertise that will help guide you along the way, starting with our FREE VA Loan Qualifier.