The VA loan is a $0 down mortgage option available to Veterans, Service Members and select military spouses. VA loans are issued by private lenders, such as a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).
The VA Home Loan was created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit. This historic benefit program has guaranteed more than 24 million VA loans, helping veterans, active duty military members and their families purchase or refinance a home.
Today, the VA Mortgage is more important than ever. In recent years, lenders nationwide have tightened their lending requirements in the wake of the housing market collapse, making the VA loan a lifeline for Veterans and active Military homebuyers, many of whom find difficulty when faced with tough credit standards and down payment requirements.
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Not only is the VA Loan a great option for home purchasing, but it can also be used for refinancing. Learn more about refinancing with a VA Loan in our next section. The VA Loan program is the most powerful home loan program on the market for many veterans, service members and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to veterans who might otherwise struggle to obtain financing. The increasing popularity has stemmed from the loan program’s signature benefits, which include:
1. No Down Payment
Saving money and building credit can be difficult for service members who are constantly on the move. With the VA Loan, qualified borrowers can finance 100 percent of the home's value without putting down a dime. Take a look at the chart below to see how much you can save through the no-money-down benefit of the VA Loan.
2. No Private Mortgage Insurance
Many conventional lenders require borrowers to pay private monthly mortgage insurance unless they're able to put down at least 20 percent, which is a tough task for many veterans. Private mortgage insurance (PMI) is an insurance that protects lenders in case of a borrower default. With a VA Loan, however, there is no PMI. This is because the federal government backs all VA Loans and assumes the risk on behalf of the borrower that is typically covered by the PMI. This VA Loan advantage allows you to build more and more equity in your house, effectively saving you thousands of dollars over the life of your mortgage.
3. Competitive Interest Rates
Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA Loan with a guaranty, financial institutions carry less risk and can offer interest rates that are typically 0.5 to 1 percent lower than conventional interest rates. Pair that lower interest rate with the ability to purchase a home with no money down and no private mortgage insurance and the savings start adding up significantly.
4. No Pre Payment Penalty
With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The prepayment penalty is a way for financial institutions to recoup some of that money. The VA Loan allows borrowers to pay off their home loan at any point without having to worry about a prepayment penalty. With the absence of a prepayment penalty, borrowers are free to consider future home purchases and refinancing options.
Additional Benefits - Basic Allowance for Housing:
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you can use BAH to pay some or all of your monthly mortgage costs. BAH varies based on your pay grade, your geographic location and your number of dependents.
Using Basic Allowance for Housing (BAH) on VA Loans
How to Start a VA Loan: All About the VA Loan Preapproval Process
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To be eligible for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility (COE) and satisfy the lender’s credit and income requirements.
1. You may be eligible for a VA loan by meeting one or more of the following requirements:
2. You have served 90 consecutive days of active service during wartime, OR
3. You have served 181 days of active service during peacetime, OR
4. You have 6 years of service in the National Guard or Reserves, OR
5. You are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
1. Although the VA determines the guidelines for VA loan eligibility, private lenders who finance the home typically have an additional set of guidelines potential borrowers must satisfy, including sufficient reliable income to repay the loan, acceptable levels of debt, and a credit score that meets the lender’s credit requirements.
2. The property will also need to satisfy the VA’s appraisal process, which looks at the home’s fair market value along with its condition.
While you DO NOT need your Certificate of Eligibility (COE) in hand to apply for a VA loan, it is an important part of VA loan eligibility. Your COE provides the lender with confirmation that you qualify for VA loan benefits.Again, it is not necessary to obtain your COE before applying for a VA loan as most VA lenders are able to instantly pull your COE through the VA’s automated system. In fact, nearly all VA loan COEs are requested electronically, and about two-thirds of certificates are issued immediately, according to the VA.
There are three basic ways you can obtain your COE for a VA loan, which include:
1. Applying through a VA approved lender
2. Applying online through the VA’s eBenefits portal
3. Applying by mail with VA Form 26-1880
The VA does not set a minimum credit score requirement for VA loan eligibility, but lenders typically do. Because of this, VA loan credit score requirements vary by lender, with most lenders typically requiring a minimum 620 mortgage credit score.
In addition to credit score, the VA requires borrowers to maintain a certain amount of income left over each month after all major expenses are paid. The excess is meant to cover typical family needs, such as food, transportation and medical care, and is known as residual income.
By enforcing residual income requirements, the VA increases the chances of its borrowers earning sufficient income to meet all financial obligations, and also ensures borrowers have a cushion in the event of an emergency.
Service Type
Required Documents
Veteran
DD Form 214 (Report of Separation)
Current or Former Activated National Guard or Reserves
DD Form 214 (Report of Separation)
Active Duty
Statement of Service
Current National Guard or Reserves (Newer Activated)
Statement of Service
Discharged National Guard (Newer Activated)
NGB Form 22 (Report of Separation and Record of Service) and NGB Form 23 (Retirement Points Accounting and proof of the character of service)
Discharged Reserves (Newer Activated)
Army Reserve: DARP Form FM 2149-2E or ARPC Form 606-E. Navy Reserve: NRPC 1070-124. Air Force Reserve: AF 526. Marine Corps Reserve: NAVMC HQ509 or NAVMC 798. Coast Guard Reserve: CG 4174 or 4175
VA Home Loan Eligibility and Entitlement
Pros and Cons of Buying a House
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Information Deemed Reliable, but not guaranteed. The property information being provided is for consumers’ personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. The data relating to real estate for sale on this web site comes in part from the participating Brokers.