VA Loans

What are the Benefits of a VA Loan?

Believe it or not, buying a home doesn’t always require a traditional 20% down payment. If you’re a current or former member of the U.S. Military, you may qualify for a VA loan, which allows you to purchase a home without a down payment.

That’s just one of the advantages you receive from a VA loan. You can use your VA loan more than once, not everyone is aware of that.

What Is a VA Loan?

A VA loan is a mortgage loan issued under a program designed for Active and Veteran Service Members and their Surviving Spouses.

Several types of VA loans exist. These include:

  • Purchase loans
  • Cash-out refinance loans
  • Interest rate reduction refinance loans

The program allows you to use a VA loan to purchase a home or tap into your home’s equity to make home improvements. When using a VA loan to purchase a home, the loan can fund up to 100% of the home’s value, which is how you eliminate the need for a down payment.

Who Qualifies for a VA Loan?

VA loans are designed for Veterans, Active-Duty Service Members, or their Surviving Spouses. To qualify for a VA loan, you’ll need to provide proof of your Military service and meet the other eligibility requirements set forth by both the VA and your VA-approved lender.

The following items detail the requirements to secure a VA loan:

Certificate of Eligibility (COE)

First, you’ll need to provide your lender with documentation proving your Military service. This document is known as a certificate of eligibility (COE) and can be obtained from the VA website.

The department may request that you provide additional service-related documentation which confirms your status as Active Duty or a Military Veteran.

Credit Score

On the one hand, the VA does not have a minimum requirement for your personal credit score. Usually you need a credit score of at least 620, sometimes 640. Lenders usually have a minimum credit score for VA loans.

Generally speaking, it’s easier to qualify for a VA loan than a conventional loan.

Debt-to-Income Ratio (DTI)

All lenders will look at your debt-to-income ratio (DTI) before approving you for a loan. Your DTI is calculated by dividing your monthly debts by your monthly income. Most VA lenders will approve loans if your DTI is 45% or lower, though, as with your credit score, this threshold can vary considerably between lenders.

The VA Funding Fee

Approved applicants will have to pay a VA funding fee. This fee helps support the VA program so that other Veterans and their families can receive the benefits of a VA loan. This fee is a percentage of your total loan amount, which can vary depending on how much you’re borrowing. The VA funding fee will vary depending on your down payment and if you have used the VA loan before.

The funding fee doesn’t have to be paid upfront, nor does it have to be paid at closing. You can roll this funding fee into your regular monthly payments to make it easier to cover.

However, you may be eligible for a refund or a waiver of this funding fee if you have service-connected disabilities.

Property Requirements

To qualify for a VA loan, the property you are buying must meet the minimum property requirements. The property itself must be:

  • A conventional family home
  • The borrower’s primary residence
  • Free of any structural defects (e.g. rot, termite infestations, etc.)
  • Free of any mechanical or electrical issues affecting safety
  • Able to supply adequate heating

These restrictions mean you can’t use a VA loan for commercial property or real estate investing. But homebuyers will find no restriction on the home’s geographic location, which allows you to use this loan program for any home in the U.S.

However, if you want to buy a condo with a VA loan, you’ll need to search the approved condo database on the Department of Veterans Affairs website.

Benefits of a VA Loan

VA loans make particularly great options for first-time homebuyers. If you or your spouse are a current or former member of the U.S. Military, you have access to the following benefits of a VA loan.

No Down Payment

One of the primary benefits of a VA loan is eliminating the need for a down payment. Traditionally, homebuyers could expect to make at least a minimum of a 3% down payment when purchasing a house. And while this requirement can vary by loan program and lender, a VA loan eliminates this requirement altogether.

No Private Mortgage Insurance

What is private mortgage insurance? Typically, when you purchase a home with a down payment of under 20%, the lender requires you to purchase private mortgage insurance (PMI).

The actual cost of your PMI can vary but usually ranges from 0.1% to 2% of every $100,000 you borrow. So for instance, if you purchase a $300,000 home, you could find yourself paying an additional $100 to $250 each month.

A VA loan requires no PMI payment because the VA guarantees at least a portion of the loan, reducing the risk lenders take in providing you with a mortgage. As a result, qualifying homebuyers can purchase a home with no money down and no additional monthly mortgage insurance fees.

Lower Interest Rates and Closing Costs

While the department backs VA loans, they are originated and funded by private mortgage lenders. This setup means that U.S. banks, credit unions, and mortgage lenders must compete to offer the best loan rates and fees.

Homebuyers can therefore compare lenders to find the best interest rates. The upshot of this is that VA loans typically have lower interest rates than conventional mortgages, which can reduce your monthly mortgage premiums.

Secondly, VA loans offer lower closing costs. A “closing cost” is a fee you pay to the lender in return for their assistance. VA loans have specific restrictions on what closing costs your lender is permitted to charge, limiting costs such as the origination fee and prohibiting prepayment penalties or attorney fees.

Assumable Loans

Understandably, first-time homebuyers may be looking for a “starter home,” with plans to sell the property at a later date. The good news is that most VA loans are “assumable.” This designation means you can transfer your current VA loan to another buyer if that buyer is also eligible for a VA loan.

An assumable loan can increase the resale value of your home since future buyers can take on the low mortgage rates of your current loan if interest rates have risen.

Thank You for Your Service

VA loans are just one way of thanking the dedicated personnel of the U.S. Military for their service.

I appreciate your service to our country! Thank you!!

Leslie Vanderwerf,  NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website

Written By

Currently a Senior Loan Officer at Cross Country Mortgage LLC, it's hard to believe I have been in the mortgage business for more than 25 years and have worked with Sharlene since 2000! I love sharing mortgage insights here each week and helping people finance their homes. Listening helps me find the right program for you!

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