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Ever since its inception in 1944, the U.S. Department of Veterans Affairs home loan program has been one of the most important benefits available to active duty and retired military personnel, allowing military borrowers who may not have had the chance to develop a credit history to be able to purchase their own home under favorable terms.
The most common VA loans are provided by private lenders but guaranteed by the Federal government — if the borrower were to default on the loan, the government will repay part or all of the loan as part of the guarantee — and provide a number of benefits to qualified service members.
Benefits of a VA Mortgage Loan may include:
- Rates at lower interest rates
- No down payment, meaning less out of pocket costs
- Lower credit score requirements than conventional home loans
Technically speaking, the VA does not have a credit score minimum. However, most participating VA mortgage lenders will require a minimum credit score of 620, although you may find some that will accept scores as low as 600. There may be exceptions based on an otherwise strong borrower profile, such as low debt ratios or a large amount of savings.
Always check your score before applying for a loan, and take steps to improve that score if you can. Another benefit is that VA loans don’t require Private Mortgage Insurance (PMI) regardless of whether you make a down payment or not, resulting in lower monthly payments. You will, however, have to pay a one-time funding fee, which is a charge paid directly to the VA designed to cover any losses sustained on defaulted loans and keep the loan program running.
The VA loan program is available to active duty military members, veterans, past and present members of the National Guard, and the surviving spouses of military personnel who died in combat. There are eligibility requirements, however. Veterans and active duty service members need to have served at least days 90 days during wartime, or 181 days during peacetime. National Guard members must have served 90 days active duty service during wartime, or six years of creditable service in the Select Reserves or Guard. Once you have been deemed eligible, you need to apply for a Certificate of Eligibility (COE), which serves as proof to the lender that you meet the VA’s eligibility requirements, to proceed with the application. The COE can be obtained directly from the VA or your mortgage lender can request one for you.
CARES Act Protections for VA Borrowers
The Coronavirus Aid, Relief and Economic Security Act signed by the President on March 27, 2020, provides protection for borrowers who are somehow economically impacted by the COVID-19 pandemic. For VA borrowers, there are three ways the Act can help.
If you have experienced a decrease in or complete loss of income due to the effects of the Coronavirus, you can request forbearance from your lender. Forbearance means you can make reduced or no payments for a period of one month up to a maximum of 180 days, with the ability to request an additional 180 day period if your economic situation has not improved.
During this time, your loan will continue to accumulate interest, but you won’t accumulate late fees or any other type of penalty. The forbearance period is designed to give you time to get back on your feet and work out a repayment plan with your lender. Your missed payments are not forgiven or canceled, just postponed. If at any time during the forbearance period you can resume making your monthly payments, you should do so.
At the end of the forbearance period, you’ll have a number of options to repay the missed payments. These include paying a larger than required monthly payment once you resume mortgage payments until the deferred amount is paid off; paying the deferred amount in a lump sum at some point during the life of the loan; making a balloon payment at the end of your loan term, in which case the VA requires the amount be non-interest bearing; or requesting a loan modification to extend the term of your loan. The VA allows for loans to be modified for up to 30 years. You should contact your lender to find out which repayment option is best for your financial situation.
Requesting a forbearance is as simple as calling your lender and requesting it. There is no documentation required. However, if you can continue to make your loan payments, it is recommended that you do so.
Moratorium on Foreclosures and Evictions
The CARES Act establishes a moratorium on foreclosures and evictions until June 30, 2020. This means that no new actions to evict from or foreclose on a property can be initiated by the lender. If a property was already in foreclosure, that process is temporarily halted until after June 30.
If you come out of the forbearance period and are still not able to make your monthly payments, there are options designed to prevent going into foreclosure and retain your ability to qualify for a VA loan in the future. These options include selling your home in a private sale, doing a short sale on the property, or deeding the property to your mortgage lender.
Once the moratorium ends, if you find yourself in danger of losing your home you should contact the VA for immediate help.
Protection for your Credit Score
Missing payments on a debt can cause your credit score to drop as lenders are required to report that your accounts are delinquent. The CARES Act provides protection by establishing rules for how lenders report information to the credit bureaus.
If you are up to date on your mortgage payments and go into forbearance, your lender is required to report your account as being current. They can mark the account as being in forbearance, which may affect your ability to apply for new credit while in forbearance, but will not negatively affect your credit score.
If you were already behind in your mortgage payments and then went into forbearance, your lender is required to maintain that delinquent status until you bring the account up to date. Your score should stay the same as it was before forbearance. However, it will already have been affected as you were already delinquent in your payments.
The 7 Best VA Loan Lenders for 2020
The process for applying for a mortgage can be complicated. The process for applying for a VA loan can be even more so, as there are a number of waivers and requirements that can change according to military status. When choosing a mortgage lender, it’s best to go with one that has experience with the ins and outs of VA lending. We’ve reviewed some of the top mortgage lenders specializing in VA loans to give you a good starting point.
- Veterans United Home Loans
- Navy Federal Credit Union
- PenFed Credit Union
- Veterans First Mortgage
- Quicken Loans
Veterans United Home Loans
Veterans United Home Loans is one of the largest VA mortgage lenders by volume in the U.S. Among the products offered by Veterans United are fixed and adjustable rate mortgages, jumbo loans, refinance loans and cash out loans.
Veterans United will check your service status, help you get your Certificate of Eligibility (COE), as well as ensure you meet any other eligibility requirements the lender may have, such as income, credit score, and debt-to-income ratio. The mortgage lender works with former senior enlisted leaders from the Army, Navy, Air Force, Coast Guard, National Guard, and Marine Corps, to help educate veterans from the different branches of the military, peer to peer, on the benefits of home ownership, the advantages provided by VA loans, and how to go through the home buying process.
Applying for VA loans with Veterans United can be easily done online.
As part of their educational efforts, Veterans United’s Lighthouse program offers credit counseling services to help veterans and active duty military not only build or improve borrower credit, but also manage their everyday finances, set budgets, and even get a VA loan pre-approval. Customers also have access to Veterans United Realty, a program puts them in touch with a network of over 6,000 real estate agents who specialize in VA home purchases and can help guide veterans through the home buying part of the process.
Check your eligibility for a Veterans United $0 down VA loan here.
USAA is dedicated to providing a full range of financial, investment, and insurance products to members of the military, both active duty and retired, and their families. For home purchases, this includes not only conventional mortgage products but also VA primary, refinance, jumbo and cash out loans, with VA loans comprising about 66% of all mortgages originated by USAA.
Customers can go online to determine their eligibility, upload documents, estimate how much of a mortgage they can qualify for, or get a pre-approval from USAA. The actual application for the VA loan is done by phone. Each customer is assigned a dedicated bank loan officer who will work with them throughout the entire process. Where USAA stands out is with their fees, or lack thereof. While they charge VA mandated 1% origination fee on home loans, there are no underwriting or documentation fees. For their streamlined refinance loans, USAA pays for the appraisal, title and VA funding fee, meaning no additional out of pocket expenses for those refinancing their mortgages.
USAA is unique in that it’s owned by its members, making it similar to a credit union — but offers a whole range of financial services that can typically be found at a bank. For veterans and their family members looking for a one-stop source for insurance, lending, banking, investment, and retirement accounts, USAA is an excellent option.
Navy Federal Credit Union
Despite its name, the Navy Federal Credit Union is available to veterans and current members of all branches of the US armed services as well as certain civilian employees of the Department of Defense. It’s also the largest single credit union in the United States, with more than 8 million members and over $90 billion in assets. In order to take advantage of Navy Federal’s mortgage products you’ll need to become a member of the credit union, which is as easy as opening a checking or savings account.
Like the other lenders on this list, Navy Federal Credit Union specializes in VA mortgages. However, you can also apply for conventional, jumbo and FHA loans, as well as Home Equity Lines of Credit. You can apply for and obtain pre-approval for either a first home purchase loan or streamlined refinance loan online, and you’ll have 24/7 access to customer service.
Navy Federal offers some features other lenders don’t. With Freedom Lock, you can lock in the interest rate on your loan, whether it be VA backed or conventional; if rates go up, your rates won’t be affected. If interest rates go down, you can readjust the rate on your mortgage to the lower number at no cost to you. With Real Match Guarantee, if you find a lower rate with another lender, Navy Federal will either match that rate or deposit $1,000 into your account upon presenting documentation of final closing with the other lender. You can also find a VA real estate specialist through the RealtyPlus program, which will partner you with realtors from agencies such as Coldwell Banker, Century 21, Better Homes and Gardens Real Estate, and Era Realty. By using RealtyPlus you’ll be eligible to receive cash back of between $400 and $8,000, depending on the value of the property. For example, if you purchase a $300,000 home, you can receive $1,750 cash back.
As a credit union, Navy Federal also offers all the basic banking services you’ll need, including checking and savings accounts, certificates of deposit, retirement plans, credit cards, auto loans, personal loans and student loans.
PenFed Credit Union
Short for “Pentagon Federal”, PenFed Credit Union is among the top credit unions serving the needs of military families. However, it doesn’t restrict its services solely to current and former members of the military. Anyone who becomes a member will have access to almost all of the credit union’s financial services.
PenFed provides 30 and 15 year fixed rate VA mortgages for the purchase of a primary home or refinancing an existing VA loan and charges no lender fees, although other fees, such as the VA funding fee, title, appraisal and tax services fees, among others, apply. For those not eligible for VA loans or members of the military who are looking to purchase a second home, there are a number of conventional financing options to choose from.
As a credit union, PenFed provides all typical banking services, including checking, savings, and money market accounts, as well as IRAs, auto loans, personal loans, student refinancing, and rewards credit cards. There are also a number of member deals available including discounts for car, life, and home insurance, asset protection programs, home security systems, tax preparation services, and much more.
Quicken Loans is not only the largest mortgage lender in the country, it’s also the second largest originator of VA loans by volume. Known for its customer service, Quicken offers an easy application process that can be initiated online through its Rocket Mortgage online platform or by phone.
You can apply for a 15, 25, or 30 year fixed rate VA loan to either purchase a home or refinance an existing VA mortgage. Quicken can help get verifying eligibility, accessing employment records, and obtaining your COE. Quicken will also approve VA loans with one of the highest DTI’s a lender can require (60%).
Quicken will not only provide VA loans but also conventional, FHA, jumbo, and USDA mortgages. A VA loan specialist will be assigned to you and help you throughout the entire loan application process, from pre-approval to closing.
LendingTree isn’t it a direct VA mortgage lender, or even a financial institution of any kind. Instead, it serves as an online financial services marketplace, making all types of mortgage programs available, including VA mortgages. In fact, it’s the nation’s largest online lending marketplace.
The advantage LendingTree most offers to military borrowers is options. By completing an online questionnaire, you can receive mortgage quotes from different VA lenders. You can then choose the lender that offers the best combination of loan terms and pricing. It will likely include at least some of the lenders on this list. Once you select the lender you want to work with, you can directly apply to that company through the LendingTree platform.
The platform also gives you access to a wealth of other financial products, including personal loans, credit cards, insurance products, student loans, and even access to debt relief programs. Using a market-place like LendingTree can streamline the comparison process — you just need to fill out your information once to get multiple quotes.
How We Chose the Best VA Lenders
Experience in VA Loans
We chose mortgage lenders that process a large number of VA loans. The application process for these loans can be complicated, and having a lender who is familiar with this process ensures that all the steps required are taken care of in a timely manner.
Geared Towards the Military
We rated mortgage lenders whose primary products were geared towards the military more than traditional lenders, since they will have a better understanding of the unique circumstances that both veteran and active duty service members may have.
Guided Application Process
We also looked at lenders who provided online step-by-step guidance throughout the pre-approval, application, and loan closing process higher than lenders that weren’t as informative. Purchasing a home can be a nerve-wracking experience, and knowing your lender can provide assistance every step of the way can help ease some of that tension.
Choose the Right Loan For You
The VA offers four different types of loan products, each with its own set of requirements and limitations. Evaluate all options before deciding which best suits your needs.
As the name implies, the purchase loan is designed for the service member who is looking to purchase a home, make energy efficient upgrades to their home, or buy property to construct a home. Prior to January 1, 2020, there was a maximum limit to the amount you could borrow. However, with the passage of the Blue Water Vietnam Veterans Act of 2019, the VA no longer places a maximum limit on the amount that can be borrowed. However, your mortgage lender may place a limit on the amount you can borrow based on your income, credit history, and debt-to-income ratio (DTI), as well as the maximum home price in the county where you are purchasing. In most counties in the US the maximum loan amount is $510,400 for 2020, but it can be as high as $765,600 if you live in a county designated as high cost. The purchase loan is meant to be used for a primary residence only. You cannot use a VA loan to purchase a vacation home, rental property, or a fixer upper that is in need of major repairs.
Interest Rate Reduction Refinance Loan (IRRRL)
The IRRRL, also known as a streamlined refinance loan, can be obtained to refinance an existing VA loan only. It can be used to get a lower interest rate, reduce the term of the original loan, or convert an adjustable rate mortgage (ARM) to a fixed rate mortgage.
Cash-Out Refinance Loan
The cash-out refinance option can be used to replace your existing loan for one with new terms in order to take equity out of your home. You can also use the cash-out option to refinance a non-VA backed loan into a VA backed loan to obtain better terms.
Native American Direct Loan (NADL)
This is the only loan offered by the VA that is managed and funded directly by the government entity. This loan is available to any veteran who is, or whose spouse is, a Native American, and can be used to buy, build or improve a home on federal trust land. As of January 1, 2020, there was no limit to the amount of money that could be borrowed (aside from the limits imposed by creditworthiness and DTI) from this program. Prior to that date, the benefit was limited to $80,000. Those wishing to apply for a NADL need to contact one of the VA’s eight regional Loan Centers.
Know the Costs Associated with VA Loans
While VA loans don’t require a down payment or PMI’s, it doesn’t mean there aren’t other out of pocket costs associated with them. However, VA mortgages do come with an upfront mortgage insurance provision, known as the VA Funding Fee. The fee can range from a low of 0.5% to 3.60% of the loan amount, and is added to the mortgage amount and can be either financed over the term of the loan or paid up front at the closing. However, in some cases, such as veterans on service-related disability or active-duty service members who have proof of being a recipient of a Purple Heart at the time of closing on the property, the funding fees can be waived.
There are other closing costs associated with VA loans. These include real estate commissions, brokerage fees, loan origination fees, discount points, appraisals, and title fees. Under VA mortgage lending rules, a property seller can pay up to 4 % of the total loan amount toward the veteran’s closing costs (these are known as “seller’s concessions”). But the veteran can also cover the closing costs through a gift from a family member. Failing all else, the lender can pay the closing costs through what are known as lender pay closing costs. In exchange for accepting a slightly higher interest rate, the lender will cover closing costs through credits.