VA Loans: A Complete Guide to Mortgages Bankrate
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LightField Studios/Shutterstock Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. LightField Studios/Shutterstock Written by Mortgage reporter Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered June 21, 2022 Edited by Mortgage editor Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Reviewed by Senior mortgage loan originator, American Fidelity Mortgage John Stearns, CMC, CRMS is a Senior Mortgage Loan Originator with American Fidelity Mortgage. June 21, 2022 Share
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PREV NEXT For many people, buying a home requires a pile of cash, putting homeownership out of reach. However, for those who qualify because of their military service (or spouse's military service), it's possible to get help buying a home with little or no money down through the VA loan program. What is a VA loan
A is guaranteed by the U.S. Department of Veterans Affairs. The loan itself isn't actually made by the government, but the fact that it's backed by a government agency makes lenders feel more comfortable offering these loans because they take on less risk than with a .As a result, it's possible to get a VA loan without a , and sometimes with looser credit standards. While you still need to meet certain requirements, and the lender still needs to approve you, if you qualify for a VA loan, it can help you attain homeownership with less money than you'd need in the bank otherwise.
How do VA loans work
Basically, you fill out paperwork from the VA that verifies your eligibility for the program. You also receive what's known as your entitlement, which is the dollar amount guaranteed on each VA loan. Lenders might be willing to loan up to four times the amount of your entitlement.With all of that in place, it's possible to get a VA loan with no money down. VA loans also don't require , but you will pay a VA funding fee when you close, which will be a percentage of the loan's total value. That fee helps keep the program running for future borrowers.
VA loan eligibility requirements
First of all, you need to make sure you're for a VA loan. The government has service requirements for veterans or those on active duty, and also offers opportunities for certain military spouses to qualify for VA loans. You can get , but the basic requirements include: You're currently on active military duty, or you're a veteran who was honorably discharged and met the minimum service requirements. You served at least 90 consecutive active days during wartime or at least 181 consecutive days of active service during peacetime. Or, you served for more than six years in the National Guard or Selective Reserve. If your spouse died in the line of duty, you may qualify for a VA loan. In order to apply, you need to obtain a VA Certificate of Eligibility, or COE. Without this certificate, you won't be able to get your loan. How to apply for a VA loan Certificate of Eligibility CEO
If you're looking for a , you can get one by applying through your eBenefits portal online or even applying through your lender. In order to apply, you do need to provide different information, based on your current status. Veterans do need to provide a DD Form 214, and active duty service members need a signed statement of service. A statement of service should include: Full name Date of birth Social Security number The date you started duty Any lost time Name of the command providing the information Different requirements may apply for National Guard or Reserve members, as well as surviving spouses. You can find more information through the , or by speaking to a qualified lender. Other VA loan requirements
You should also keep these other in mind: VA loan limit: Since Jan. 1, 2020, there have been no official limits to the value of VA loans, but your lender may impose their own terms and your entitlement will still be pegged to conforming mortgage limits. Property type: Investment properties and vacation homes cannot be purchased using VA loan proceeds. Furthermore, you must occupy the home and use it as your primary residence. Credit score: The VA does not specify a minimum credit score requirement. However, borrowers might have a hard time getting approved by a lender if they don't have at least a 620 FICO Score. Income: Borrowers need to show they have the income to make the mortgage payments. It's equally important to not have a huge debt load since the lender will assess your debt-to-income ratio (DTI), or the percentage of your monthly income that's spent on debt payments. Assets and down payment: There is no down payment requirement for VA loans, but the lender may have overlays (or specific criteria) that mandate a down payment in place for borrowers with lower credit scores. Reserve funds: Many lenders require borrowers to have an adequate amount of reserves – generally two to three months of mortgage payments – before clearing you to close on your loan. It's also possible to use home loan benefits after bankruptcy, as long as sufficient time has passed, typically two years after filing for Chapter 7 bankruptcy or 12 months after Chapter 13 bankruptcy.
VA home loan benefits
If you're eligible for a VA loan, it's worth considering over other loan types. Here's why: The cost of borrowing is generally lower with VA loans. You can get approved for a VA loan with no down payment, but you'll need at least 3 percent down for a conventional loan. The maximum DTI ratio is determined by the lender. So, you could still get approved even if you have a higher debt load. You won't pay mortgage insurance over the loan term. However, it's required for conventional loans with a down payment less than 20 percent and for the life of the loan if you get an FHA mortgage. Closing costs may be lower, and there are no prepayment penalties should you decide to pay the loan off early. Types of VA loans
VA mortgage: This allows qualified service members to purchase a home with no minimum down payment. : Eligible service members can use this loan to build the home of their dreams. : This allows service members to , with an option to turn home equity into cash if needed. VA streamline : This allows service members to replace a VA mortgage with a , which can offer lower interest rates. It can also be used to change from an adjustable-rate loan to a fixed-rate loan. : This can be used by service members to finance the cost of improvements made to the home. Native American Direct Loan (NADL): This is available to Native American veterans to help them purchase, build, improve, or refinance a home that is located on federal trust land How to apply for a VA loan
Once you have your paperwork in order, you can apply for a loan through a VA lender. Follow these steps to simplify the application process: Get preapproved for a VA loan. Find a home and make an attractive purchase offer. If your offer is accepted, sign a purchase contract with the buyer. Await the results of the home inspection and VA home appraisal. Submit any additional documents the underwriter needs to finish processing your loan. Remit payment for closing costs and sign the closing documents. Also, keep in mind that not every institution offers VA loans, so you need to look for a lender that will work with you. In many cases, a should be able to answer your questions and guide you through the process.Be sure to to ensure you're getting the best deal for you. Also, make sure you're aware of some of the basics of the VA loan process before starting. Refer to this for additional guidance.
VA loan FAQs
What are VA entitlements and why are they so important
A key feature of VA loans is the entitlement. A VA loan entitlement is basically the amount of the loan that the VA will guarantee to the lender if you default.There are two types of entitlement: Basic entitlement: up to $36,000 for loans worth less than $144,000, or 25 percent for loans of that amount or more. Bonus entitlement: Up 25 percent of the Federal Housing Finance Agency (FHFA) loan limit, minus the basic entitlement. For those who need to purchase a home that costs more than $144,000, the bonus entitlement can be used. For example, in most counties in the U.S., the FHFA conforming loan limit for 2022 is . In that case, 25 percent of the loan amount would be $161,800. However, for the total entitlement, you need to subtract out the basic entitlement, leaving you with $125,800.Many lenders are willing to loan those who qualify for a VA loan up to four times the amount of their entitlement, so you might be able to get a loan for $144,000 on the basic entitlement of $36,000.For those who live in high-cost areas, the bonus entitlement is figured in the same way, but based on the higher FHFA conforming loan limit, which is based on the county where the house is located. Before applying, on the loan limits in your area.
Do VA loans require PMI
No, unlike other loans, you don't need to worry about PMI. Due to the entitlement, which usually amounts to more than 20 percent of the home's value, you don't need to pay PMI on a VA loan.
What is a VA funding fee and how much does it cost
While you don't have to worry about PMI, you do have to pay a VA funding fee. Your VA funding fee depends on the size of your VA loan down payment, and whether it's your first-time use of the benefit. Down payment First-time use Subsequent use None 2.30% 3.60% 5%-10% 1.65% 1.65% 10% or more 1.40% 1.40% So, while a VA loan down payment isn't required, it can save you money to make a down payment. Quick note: Disabled veterans who receive disability benefits are exempt from the VA funding fee. VA closing costs
As with any mortgage, different lenders have various closing costs. You might need to pay for discount points, a credit check, VA appraisal fees, title insurance and other costs, including local and state taxes. Generally, it's possible to wrap your VA closing costs into the loan amount. However, that increases how much you need to borrow and can cost you more. Help for struggling VA borrowers
If you're struggling with your VA loan, there's extra help available. The VA can help you negotiate with your lender if you can't make payments. With the help of the VA, it's possible to avoid foreclosure through loan modification or other repayment plans. Call 877-827-3702 if you need help. What are the VA loan occupancy requirements
It's also possible to refinance a VA loan, and the VA offers a program designed to help you refinance to a lower-rate loan. Bottom line
The VA loan program can be a big help to those who have served their country and want to achieve the dream of homeownership. VA loans are available with zero down if you meet the eligibility criteria. So, it's important to learn about how they work before searching for the right lender to avoid hiccups during the application process. ON THIS PAGE
Written by Zach Wichter Mortgage reporter Zach Wichter is a former mortgage reporter at Bankrate. He previously worked on the Business desk at The New York Times where he won a Loeb Award for breaking news, and covered aviation for The Points Guy. Edited by Mortgage editor Reviewed by Senior mortgage loan originator, American Fidelity Mortgage up next Part of Mortgages Here’s what you need to do to get VA loan and it’s well worth t... Apr. 1, 2022 Mortgages These loans for veterans and service members are increasingly popular. Jan. 3, 2022 Mortgages To get a VA loan certificate of eligibility, you’ll need to meet some key r... Apr. 19, 2022 Mortgages Most lenders make VA loans, but here’s how to find one that really kn... Mar. 23, 2022 Best Lenders Here is Bankrate’s guide to the best VA mortgage lenders. Jan. 19, 2022 Learn more Nov. 13, 2022