If you’re a military service member, veteran or surviving spouse, you may be eligible for a Veterans Affairs (VA) loan, which can help you access a loan with no down payment.
VA loans are guaranteed by the US Department of Veterans Affairs (VA) to help eligible veterans buy a home, thanks to the GI Bill. With lower interest rates, no down payment, and just a little red tape, a VA home loan makes it easy to purchase or update a property. It’s ideal for veterans who are first time home buyers or need extra support to get a home loan.
How does a VA loan work?
Veterans Affairs (VA) provides eligible US military service members, veterans and surviving spouses with a range of programs to help borrowers purchase, build or repair a home for their personal occupancy. Loans are typically up to $424,100.
VA guarantees 25% of the mortgage, which allows the lender to offer you more favorable finance terms, such as a competitive interest rate, comparable closing costs and the ability to refinance the funding fee. The loan itself is provided by qualified lenders, such as banks and mortgage companies, and you still have to meet credit/income requirements to qualify.
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What are the pros and cons of VA loans?
- No down payment. Assuming the sale price does not exceed the appraised value, you won’t be required to make a down payment for the loan, which helps you minimize upfront costs. This is great for first time home buyers.
- No insurance. VA home loans don’t require you to take out private mortgage insurance (PMI), which are fees added to mortgages with low down payments as extra insurance to protect lenders. Your VA loan is backed by the government, so you don’t need to pay for extra insurance.
- Lower closing costs. VA regulations restrict the amount that you can be charged for closing costs. In some cases, closing costs are paid by the seller.
- Prepay without penalty. The participating lender can’t charge you a penalty fee if you decide to pay out the loan early, which gives you extra flexibility and lets you make more than the minimum payment on your mortgage. Pay down your home early and save on interest fees.
- Easier qualification. The VA allows higher debt-to-income ratios than many traditional lenders, which makes it easier to qualify even if you have a lower credit score.
- VA support. VA provides support to veteran borrowers who experience financial difficulty, which means you can benefit from VA assistance if you default on your payments. The VA also conducts property appraisals before you purchase the property.
- Fees. Although the cost of a VA loan is generally lower than other types of mortgage products, you’ll still need to pay fees such as the VA funding fee, which goes to support the program for other veterans. Expect to pay 2-3% of the home purchase price. Surviving spouses and veterans receiving disability or retirement compensation are exempt from the VA funding fee.
Basically, the VA fee cancels out the low closing costs, so overall you’re getting a loan with no down payment, no PMI, and no prepayment penalties.
What VA programs are available?
As a veteran, you have access to home loans, refinancing, lower interest rates, and repair/home equity loans, even on homes you owned before serving in the military. Take advantage of some of these home loan and financing options.
- Purchase loans and cash-out refinance. A purchase loan helps you buy a home at a competitive rate without making a down payment, and a cash-out refinance loan enables you to take cash out of your existing home equity, similar to a home equity line of credit (HELOC), to pay for things such as debt or home repairs. To qualify for these programs, you must have good credit, enough income to service the loan and a valid Certificate of Eligibility (COE).
- Loan refinancing. Interest rate reduction refinance loan (IRRRL) can help you lower your interest rate and monthly mortgage payments by refinancing your existing VA loan.
- Native American Direct Loan (NADL) Program. The NADL is available to Native American veterans, which helps them purchase, construct, repair or refinance a property on Native American trust lands. You must have a valid Certificate of Eligibility (COE) to qualify.
- Housing grants. If you have certain disabilities associated with your military service, you may be able to buy or modify accessible housing with a Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA) grant offered by VA. Read more about disability requirements.
Am I eligible for a VA home loan?
To be eligible for a VA loan, you must have sufficient credit and income and a valid Certificate of Eligibility (COE). You must have served a minimum of 90 days during wartime, 181 days in peacetime, or 6 years in the National Guard or Reserves. The property you want to buy must be for your own personal occupancy.
VA mortgages are available for:
- Active-duty military personnel
- National Guard or Reserves members
- Surviving spouses who are not currently married
You also may be eligible for a VA Home Loan if:
- You’ve served at least 90 consecutive days throughout wartime
- You’ve served at least 181 days throughout peacetime
- You have served 6 or more years in the National Guard or Reserves
- You’re the spouse of a service member who died while active or from the result of a disability during service
How can a VA loan be used?
As outlined by VA, a VA mortgage can be used for the following purposes:
- Buy a residential home or property
- Build a residential home
- Purchase and repair a residential home
- Improve a home with energy-efficient enhancements
- Refinance an existing VA loan
The rules about the kind of residence you can buy or update are extensive, but generally boil down to whether you’re using the property primarily as a residence. Manufactured homes, farms, duplexes, condos, and other property types can qualify for a VA loan. You can purchase a home anywhere in the US, including Hawaii and Alaska, and in American territories such as Puerto Rico, Guam, and the Virgin Islands.
How to apply for a VA program?
Here’s how to apply for a VA loan with your lender.
- Contact lender. You’ll need to contact a lender that participates in the VA program to get pre-qualified for a loan program. During this stage, you can discuss your borrowing needs with the lender and get an estimate on how much you can afford to borrow.
- Request Certificate of Eligibility (COE). The COE verifies that you satisfy the eligibility criteria for the VA loan. To obtain a COE, you can apply with your lender, by mail, or online through the VA benefits portal. For interest rate reduction refinance loans, you don’t have to access a COE and can use the VA email confirmation process instead.
- Purchase agreement. After you’ve obtained the COE, contact a real estate professional to obtain a purchase agreement. You must ensure that the purchase sales agreement contains a unique “VA Option Clause.” You may want to include a clause that allows you to cancel the contract without penalty. For adapted housing grants, you can apply through the VA website or by completing the application form and sending it to your local VA Regional Loan Center.
- Apply for VA loan. Your lender will be able to help you complete the loan application and gather the required documents, such as bank statements, to complete the application. Once you’ve completed the application, the lender will organize for a VA appraisal and review all the documentation to decide if the loan should be offered.
- Close on Your New Property. The lender will select an attorney to organize the closing and transfer the property to you.
What documents do I need to provide?
If you’d like to apply for a VA loan, you’ll typically need proof of your veteran status and income information.
- W-2 forms. Recent copies of your W-2 statements confirming your gross household income.
- Assets. Documentation of any assets you have such as checking accounts or trust funds. You might also need to catalog your liabilities.
- Certificate of Guarantee. Evidence of your DD Form 214, also known as your Certificate of Release or Discharge from Active Duty, Report of Separation, or Certificate of Guarantee form. Service members receive this form after being discharged from duty.
How much can I borrow?
Although VA doesn’t limit the amount you can borrow to finance your property, there are limits on the amount of liability that VA can assume. The VA will guarantee 25% of your loan, up to $424,100, or more if both you and your spouse qualify for a VA loan.
For more information about VA loan limits, visit the VA website or use this VA Loan Limit Calculator.
How can I apply for different VA programs?
Generally, if you want to apply for a VA program, you’ll first need to ensure that your lender offers the VA program. You’ll also need a COE, which can be accessed through the VA benefits portal, by mail or through your lender.
For purchase loans, cash-out refinance and NADL programs, you can apply through the participating lender. For interest rate reduction refinance loans, you do not have to access a COE and can use the VA email confirmation process instead. Finally, for adapted housing grants, you can apply by either through the VA website or by completing the application form and lodging it at your local Regional Loan Center.