If you’re a 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.
A Veterans Affairs (VA) mortgage is provided by qualified and private lenders such as banks and mortgage companies. They are available to borrowers who have served or are currently serving in the US military.
VA mortgages are guaranteed by the US Department of Veterans Affairs (VA) to help eligible veterans purchase property with no down payment. VA mortgages are generally offered in locations where private financing is not easily accessible, such as rural areas or small cities.
How does a VA mortgage work?
VA provides US service members, veterans and eligible surviving spouses with a range of programs to help borrowers purchase, build or repair a home for their personal occupancy.
VA guarantees a portion 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.
What are the pros and cons of VA mortgages?
- No down payment. Given that the sale price does not exceed the appraised value, you won’t be required to make a down payment for the loan, which allows you to minimize your upfront costs.
- No insurance. VA mortgages don’t require you to take out private mortgage insurance (PMI), which means you can keep costs down.
- Lower closing costs. VA regulations restrict the amount that you can be charged for closing costs. In some cases, closing costs are absorbed 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.
- 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.
- Fees. Although the costs of a VA loan are generally lower than other types of mortgage products, you’ll still need to pay fees such as the VA funding fee.
What VA programs are available?
There are several VA programs available to borrower, some of which are discussed below.
- Purchase loans and cash-out refinance. A purchase loan helps you buy a home at a competitive rate without making a down payment, whereas a cash-out refinance loan enables you to take cash out of your equity to pay for things such as debt or home repairs. To qualify for these programs, you must have good credit, sufficient income to service the loan and a valid Certificate of Eligibility (COE).
- Interest rate reduction refinance loan (IRRRL). This type of loan can help you obtain a lower interest rate by refinancing your existing VA loan. The IRRRL can be useful to lower the interest and therefore reduce your monthly payments on the current 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 disabilities associated with your military service, you may be able to obtain suitable housing with a Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA) grant offered by VA.
Am I eligible for a VA mortgage?
To be eligible for a VA mortgage, you must have sufficient credit and income, a valid Certificate of Eligibility (CEO), and the property you want to buy must be for your own personal occupancy.
VA mortgages are available for:
- Active-duty personnel
- National guard/Reserves members
- Surviving spouses
How can a VA mortgage be used?
As outlined by VA, a VA mortgage can be used for the following purposes:
- Purchase a residential property
- Construct a residential property
- Purchase and repair a residential property simultaneously
- Improve a property by installing energy-efficient improvements
- Purchase a manufactured property
- Refinance an existing VA loan
For a full breakdown of the uses for a VA mortgage, including the eligibility requirements for service members, spouses and other eligible beneficiaries, you can visit the VA website.
How can I get a VA mortgage?
If you’re a service member, veteran or surviving spouse and you’d like to obtain a VA mortgage for your personal occupancy, you can apply with your lender once you’ve obtained a COE. Simply follow the steps below.
- 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.
- Certificate of Eligibility (COE). The COE verifies that you satisfy the eligibility criteria for the VA loan. To obtain a COE, you can apply online through the VA benefits portal, or you can apply with your lender, or you can apply by mail. For full details of how to obtain a CEO, please visit the VA website.
- Purchase agreement. After you’ve obtained the COE, you’ll need to 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 discharge the contract without penalty.
- 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 whether or not the loan should be offered.
- Closing. The lender will select an attorney to organize the closing. This representative will coordinate the date and time in which the property is transferred.
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.
What documentation do I need to provide?
If you’d like to apply for a VA loan, you’ll typically need to supply the following information:
- W-2 forms. Recent copies of your W2 statements confirming your gross household income.
- Assets. Documentation of any assets you have such as checking accounts or trust funds.
- Certificate of Guarantee. Evidence of your DD 214 or Certificate of Guarantee form.
How much can I borrow?
Although VA does not place a limit on the amount you can borrow to finance your property, there are limits on the amount of liability that VA can assume.
These loan limits vary by county, but the basic entitlement available is $36,000. Generally lenders will loan up to four times a Veteran’s available entitlement without a down payment.
For more information about VA county loan limits, please visit the VA website.
Frequently asked questions
Can I use a VA loan to buy a duplex?
Yes. The only time a VA can be used to purchase rental property is if the benefits are used to buy a duplex, triplex, or fourplex.
Can I use a VA loan more than once?
Can I use my VA home loan benefit more than once? Yes, a veteran’s entitlement can be restored once the veteran has disposed of the property and paid the loan in full. This will allow the veteran to use his or her VA home loan benefit again.
Can I get extra cash at closing to make improvements on my home?
Only in certain situations. If the improvements make the home more energy efficient you can request an energy efficient mortgage (EEM) which can allow you to finance up to an additional $6,000 on your mortgage. You also have the option of taking a cash-out refinance which would allow you to take out additional funds for home improvements and other approved reasons.
What is a child care letter?
A child care letter is a letter on a VA Loan which requires childcare expenses to be counted as a liability. A child care letter is only needed if the child is 13 years old or harder.
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