VA Home Loan Guide
The VA Home Loan stands as a powerful and unique tool for qualifying homebuyers. Whether you're an active-duty military member, a veteran or a family member seeking insights, there are a few things you’ll need to know to ensure a successful and financially responsible homebuying journey.
In this guide, we navigate the ins and outs of VA loans, offering a roadmap to help veterans secure their dream homes.
What is a VA loan?
A VA loan is a mortgage option guaranteed by the Department of Veterans Affairs that’s available to qualifying veterans, active-duty service members, and certain surviving spouses. The VA program is designed to support military personnel in achieving homeownership and offers advantages like competitive interest rates and 100% financing.
How does a VA loan Work?
VA loans provide a housing solution for veterans, active duty service members and certain spouses. Administered by private lenders but guaranteed by the VA, they offer financial benefits that provide a pathway to homeownership for those who have served in the military. They also typically have lower interest rates than conventional mortgages.
To qualify for a VA loan, you’ll need:
- A Certificate of Eligibility (COE)
- A credit score of at least 620
- Proof of income
- A debt-to-income ratio under 50%
Types of VA home loans
There are a few different kinds of VA home loans, but the one you choose will depend on your needs.
VA purchase loan: The most common type of VA loan. It allows individuals to make a purchase with no down payment. VA purchase loans tend to offer better terms and interest rates than conventional home loans. The amount you can borrow depends on how much entitlement you have left — if you have full entitlement, you don’t have a loan limit.
Interest Rate Reduction Refinance Loan (IRRRL): Also known as a streamline refinance because it doesn’t require the full borrower vetting process. It is for refinancing an existing VA loan, and can be used to lower the interest rate. If you have an adjustable or variable interest rate on your current VA loan, an IRRRL can stabilize your monthly payments by transitioning the mortgage to a fixed rate.
Cash-out refinance loan: Allows borrowers to convert any gained home equity into cash for that can be used for any purpose.
Native American Direct Loans: The only loan that is directly funded by the VA and not private lenders. It is designed for eligible Native American veterans to purchase a home and also provides adapted housing grants for those with service-related disabilities.
Who qualifies for a VA loan?
VA loans are only for U.S. military veterans, active-duty service members, certain members of the National Guard and Reserves and eligible surviving spouses. There are varying length-of-service requirements depending on your status.
Active service members must have at least 90 days of continuous service. Requirements for veterans, reserve and National Guard members depend on the time in which they served — you can see the VA’s length of service requirements here.
Benefits of a VA home loan
VA loans feature favorable terms that can make home ownership more attainable for veterans and eligible service members. There’s no required down payment or private mortgage insurance (PMI) , and they offer competitive interest rates compared to conventional home loans. Credit score requirements are typically more lenient, with the minimum score typically around 620. There is, however, a VA funding fee that is used to support the VA’s loan programs.
These loans also provide flexibility during financial hardships, and there's no prepayment penalty. Borrowers can also ask the Department of Veterans Affairs for assistance if they fall behind on their monthly payments. The VA offers financial counseling and helps borrowers negotiate with mortgage lenders to avoid foreclosure.
How to get a VA loan
1. Gather the necessary documentation to prove eligibility
The first step to tapping into the VA home loan program is obtaining your Certificate of Eligibility, which shows the lender that you’re qualified for the benefit. You should also have your credit report, proof of income, government-issued photo ID, and two years of W-2 statements and tax returns.
2. Research the best VA lenders
Find a lender who will work with you and understand your needs as a borrower. Money’s latest list of the best VA lenders can help you get started on your search.
3. Submit a VA loan application
Once you’ve obtained your documentation and picked a lender, you’ll apply for a VA mortgage. You can do this quickly and easily through most lenders’ websites.
4. Get a property appraisal
Your lending team will send an appraisal request to the VA, which will assign one of their independent appraisers to your property. The appraiser will determine if your property is worth the sale amount and make sure it’s up to VA and lender standards.
5. Begin the mortgage underwriting and approval process
You’ll begin the underwriting process when you’re pre-approved for a loan amount. Depending on your credit risk and income, the lender will either use the VA loan automated underwriting system (AUS) or underwrite your loan manually. Manual underwriting is typically reserved for higher-risk borrowers who have a limited credit history, a history of late payments or factors like past bankruptcy or foreclosures. The lender will approve or deny your loan and assign a closing date.
6. Close on your VA home loan
The final step on your VA home loan journey is to close, which typically takes between 40 and 50 days. At this time, you’ll pay any closing costs, like the required one-time funding fee, which amounts to 1.5% of your loan amount. You’ll also submit any payments for title-related costs, taxes, appraisal fees, insurance and loan origination fees. Then, you’ll meet with a closing agent, title company representative, the home seller and any agents or attorneys you used during the homebuying process.
Review the terms and conditions of your loan and sign the documents required to obtain the keys to your new home.