The Ultimate Guide to a VA Loan

The Ultimate Guide to a VA Loan

In the United States, the average household has more than $130,000 in debt, and the number of people living paycheck-to-paycheck is on the rise.

With this kind of financial burden, it can be hard to save up for a down payment, let alone qualify for a VA home loan with traditional underwriting guidelines.

Fortunately, there are many options available to help you purchase your first home or use your VA loan in other ways!

VA home loans work by using your military service as collateral instead of credit scores or a money down payment which means they offer low-interest rates and flexible qualifications – but how do you find out if you qualify?

Read on to learn more about what VA home loans are, who should consider them and where to get started.

Here’s the ultimate guide to VA loans and how you can qualify for these benefits.

What Is a VA Loan?

The Department of Veterans Affairs (VA) offers veterans, active-duty military, reservists, and their family members no-down-payment mortgages guaranteed by the government. There is no down payment requirement, as well as a lower interest rate, flexible guidelines, no private mortgage insurance (PMI), and an easy qualification process with these mortgages.

Who Are VA Loans Best For?

When we think about VA loans, veterans, active military members, and their family members come to mind. But did you know that eight uniformed branches can take advantage of VA loans?

The eight branches that can qualify for VA home loans are:

  • Air Force
  • Army
  • Navy
  • Space Force
  • Marines
  • Coast Guard
  • The U.S. Public Health Service (USPHS)
  • The National Oceanic and Atmospheric Administration (NOAA)

But, when are VA loans a wise choice?

VA mortgages might be the best choice if you don’t have enough funds to make a downpayment or you can qualify at a comparatively lower interest rate.

Top 11 Benefits of a VA Loan

How Does a VA Loan Work?

As stated above, these mortgages come with a government guarantee. Meaning, if a borrower fails to pay back the loan on time, the VA will pay a certain amount to the private lender.

This allows lenders to provide mortgages at lower interest rates.

Check out our VA Loan Calculator to see what you can afford.

If you’re wondering how to apply for a VA loan, you must start by getting your VA Certificate of Eligibility (COE). However, you must meet the minimum service requirements defined by the department to establish your VA Loan eligibility for COE.

Before starting with the application procedure, it is often recommended to get prequalified for a VA loan. This gives you insight into an appropriate house shopping budget.

After prequalifying for the loan, you can apply for the COE in one of the following ways:

  • You can apply online by filling out VA Form 26-1880.
  • You can submit your application through the mail.
  • You can ask your private lender to get it for you.

The next step is to go house hunting. And, while this can be the most exciting part of the VA home loan application procedure, it is also the most important. You must ensure that the property you choose meets all the Minimum Property Requirements (MPRs) defined by the VA.

After selecting the property, you can move on with the loan application and apply for the VA loan appraisal.

A VA loan appraisal is an assessment conducted by an appraiser to determine the property’s actual value and ensure that the house meets all the MPRs. The result of an appraisal can affect your VA home loan application in various ways.

So, make sure that the house you select is within your budget and meets all the requirements. If the VA mortgage appraiser approves your application, you can submit all the required documents for loan closing. Remember to have all the necessary documents on hand to avoid any unnecessary hassles!

How to Get a VA Loan?

If you’re trying to figure out how to apply for a VA home loan, you should first find out if you qualify for one. There are some additional steps to get approved, as well as various qualifications that you must meet.
Continue reading this ultimate guide to understanding what is a VA home loan!

Wondering How to Qualify for a VA Home Loan?

To qualify for a VA loan, the most important document you’ll need is your VA COE. However, you must remember that your COE is just one part of your eligibility. Ultimately, who qualifies for a VA loan depends on a number of additional factors as well.

You must also satisfy your lender’s financial requirements and make sure the property meets all the MPRs.

Check out our Best Rated VA home loan lenders.

VA Mortgages Property Requirements

VA MPRs are requirements that help determine whether the property is safe for living or not, including the following:

  • The house must have adequate space for eating, sleeping, cooking, and bathing.
  • It has a separate shutout for waste disposal, gas, and power.
  • It should not have more than four units for storage or laundry.
  • It has an adequate water supply.
  • The roof is adequate and leak-proof.
  • The house has proper ventilation, attics, and storage space.
  • The property must have a proper drainage system.
  • It is free from any sort of infestation.

Minimum Service Requirements

To qualify for COE, any ONE of the following must be true:

  • You are a current or former military member who has either served at least 90 consecutive days during wartime or 181 consecutive days during peacetime, OR
  • You are a reservist with at least six years of experience, OR
  • You are a family member/spouse of a veteran who either went MIA, was a prisoner of war (POW), or died in the line of action or from a service-related disability.

What Is the Minimum Credit Score to Qualify for a VA Mortgage?

There are no minimum credit score requirements to qualify for a VA loan, but your private lender will require you to have a minimum score of 620.

To improve your credit score, implement the following financial habits:

  • Try not to max out your credit cards.
  • Make sure to clear any existing debts.
  • Pay your bills on time.

VA Home Loan Down Payment Requirements

Unlike conventional loans (which require you to either pay a 20% down payment or PMI), VA home loans have helped millions of veterans combat homelessness through their “no-down-payment” option.

va loan

Eligibility Requirements for VA Home Loans

The eligibility requirements for VA home loans differ from service type to service type. However, all applicants must apply for the COE to validate their eligibility.

You must meet any one of the conditions stated above to qualify for the loan. But, if you cannot meet either of the conditions, there is still a slight possibility that you might qualify if your discharge falls under one of the following categories:

  • You were discharged due to hardship, reduction in force, or at the convenience of the government.
  • You were discharged due to a service-connected disability.
  • You served at least 21 months of the two-year enlistment and were discharged early.

Here are eligibility requirements for different service types.

Requirements for Veterans Home Loans

To apply for VA loans as a veteran, you’ll need DD Form 214 (Report of Separation) to obtain your COE. Besides getting your COE, you must also submit documents to meet the lender’s requirements and ensure that the house meets all the MPRs.

Requirements for Active-Duty Service Members

All active-duty service members are required to submit their Statement of Service.

This statement should include the following information:

  • Your full name
  • Date of birth
  • Social Security number
  • Date of joining the service
  • Lost time, if any
  • Name of the commander confirming all of the information

VA Mortgage Requirements for Spouses

Getting VA benefits as a spouse depends on whether you receive Dependency and Indemnity Compensation (DIC).

If you receive DIC, you must fill out the VA Form 26-1817 and obtain a copy of your Veteran’s DD Form 214.

If you don’t receive DIC, you’ll need to apply by filling out VA Form 21P-534EZ and submitting the application to your state’s Pension Management Center.

In addition to these, you will also need to submit a copy of your marriage license, the veteran’s death certificate, and separation documents.

Requirements for Other Beneficiaries

Here’s a list of documents you’ll need, depending upon your service type.

  • Current/Former Activated National Guard/Reservist – DD Form 214
  • Current Non-Activated National Guard/Reservist – Statement of service
  • Discharged National Guard – NGB Form 22 and 23.
  • Discharged Army Reserve – DARP Form FM 249-2E or ARPC Form 606-E
  • Discharged Navy Reserve – NRPC 1070-124
  • Discharged Air Force Reserve – AF 526
  • Discharged Marine Corps Reserve – NAVMC HQ509 or NAVMC 798
  • Discharged Coast Guard Reserve – CG 4174 or 4175

What Is the Certificate of Eligibility (COE)?

The VA Certificate of Eligibility (COE) is one of the most important documents required for the VA home loan process. It stands as evidence to your private lenders that you are eligible for VA loan benefits.

How Do I Apply for My COE?

You can get the COE through one of the following methods:

  • You can apply online at VA’s official site.
  • You can visit a regional VA office and fill out your application.
  • You can ask your private lender to get it for you.

Does Getting a COE Mean You Are Guaranteed a VA Loan?

While COE is an important requirement to qualify for a VA loan, it’s not the only requirement.

Besides qualifying for the COE, you must also meet your lender’s requirements, such as having a minimum credit score of 620, enough residual income, and a debt-to-income ratio of 41%. You must also make sure that the property selected meets all of the Minimum Property Requirements (MPRs).

Types of VA Loans

There are several different types of VA loans, and each has its own perks and benefits.

Here is an overview of what you need to know.

Buying a Home? Use a VA Purchase Loan!

VA purchase loans allow borrowers to purchase a new home without paying a down payment or Private Mortgage Insurance (PMI).

To qualify for a VA purchase loan, all of the following conditions must be met.

  • You must prove your eligibility and obtain a Certificate of Eligibility (COE).
  • You must meet the lender’s financial requirements.
  • You must select a property that meets all of the MPRs defined by the department.

VA Mortgage Refinancing Options

The VA also offers its applicants the opportunity to refinance an existing VA/Non-VA loan to qualify for even lower interest rates or tap into their home’s equity.

VA Interest Rate Reduction Refinance Loan (VA IRRRL)

This refinancing option allows you to refinance an existing VA home loan into a new loan with new guidelines and lower interest rates. You must meet the following conditions to qualify for an IRRRL:

  • You have an existing VA-backed loan.
  • You are using VA IRRRL to refinance an existing VA-backed loan.
  • You currently reside in the home you are refinancing.

Why go for an IRRRL?

Also known as a streamline refinance, this refinancing option allows you to qualify for even lower interest rates. This can lower your monthly payment and result in massive savings.

Additionally, this loan type changes your fixed/adjustable interest rate to a fixed interest rate, making your monthly mortgage payment more stable.

To apply for an IRRRL, get in touch with a VA-approved private lender so that you can submit all the required documents, follow the loan closing process, and pay the closing costs.

VA Cash-Out Refinance

Need cash fast?

This refinancing type lets you refinance a VA or Non-VA loan into a VA home loan and tap into your home’s equity to repay any existing debt, pay tuition, and do home renovations.

To qualify for a cash-out refinance loan, all of the following conditions must be met:

  • You are eligible for the VA COE.
  • You are able to meet all the requirements of the VA and your lender.
  • You are currently living in the home you are refinancing the loan for.

The VA cash-out refinance is a good choice if you wish to convert your non-VA loan into a VA home loan or want to eliminate your debt by tapping into your home’s equity.

VA Energy Efficient Mortgage

The VA Energy Efficient Mortgage (EEM) is perfect for those who want to invest in their property by renovating their home. If you are someone who is planning to live in a house for a long time, EEMs could be a great option for a variety of functional updates.

Here’s a list of home improvements you can pursue with an EEM.

  • Thermal doors and windows
  • Insulation for walls, roofs, and floors.
  • Water heaters
  • Solar heating and cooling systems
  • Storm doors or windows
  • Heat pumps
  • Furnace modification

Native American Direct Loan (NADL) Program

If you or your spouse are a Native American veteran, you can opt for the NADL program to purchase, renovate, and build a home on Federal trust land, given you meet the following conditions.

  • You have a valid VA COE.
  • You currently reside in the house you are using your NADL benefits for.
  • You can prove that you have enough funds to pay for the monthly installment of a NADL.
  • You can meet your lender’s financial and credit requirements.
  • Your tribal government has an MOU with the VA on how the plan will work on the trust land.

What Is the VA Loan Limit?

The VA home loan limit is the maximum amount an applicant can borrow without making a downpayment. However, an applicant with full entitlement is not restricted to any VA loan limits, meaning they can borrow as much as they qualify for.

What is entitlement?

Remember when we said that the VA will pay a certain amount to the lenders if the borrower defaults in any way?

This certain amount is called entitlement—it can be either $36000 or 25% of the loan amount. A borrower who has not used their VA loan benefits or has repaid their previous loan fully has full-entitlement.

VA Loan Limits by State (2021)

State VA Loan Limit State VA Loan Limit
Alabama $548,250 Montana $548,250
Alaska $822,375 Nebraska $548,250
American Samoa $548,250 Nevada $548,250
Arizona $548,250 New Hampshire $548,250-$724,250
Arkansas $548,250 New Jersey $548,250-$822,375
California $548,250-$822,375 New Mexico $548,250
Colorado $596,850-$822,375 New York $548,250-$726,525
Connecticut $548,250-$601,450 North Carolina $548,250-$625,500
District of Columbia $822,375 North Dakota $548,250
Delaware $548,250 Northern Mariana Island $548,250
Florida $548,250-$608,350 Ohio $548,250
Georgia $548,250 Oklahoma $548,250
Guam $822,375 Oregon $548,250
Hawaii $822,375 Pennsylvania $548,250-$822,375
Idaho $548,250-$822,375 Puerto Rico $548,250
Illinois $548,250 Rhode Island $548,250
Indiana $548,250 South Carolina $548,250
Iowa $548,250 South Dakota $548,250
Kansas $548,250 Tennessee $548,250-$586,500
Kentucky $548,250 Texas $548,250
Louisiana $548,250 Utah $548,250-$817,650
Maine $548,250 Vermont $548,250
Maryland $548,250-$822,375 Virgin Islands $822,375
Massachusetts $548,250-$822,375 Virginia $548,250-$822,375
Michigan $548,250 Washington $548,250-$776,250
Minnesota $548,250 West Virginia $548,250-$822,375
Mississippi $548,250 Wisconsin $548,250
Missouri $548,250 Wyoming $548,250-$822,375

VA Home Loans Frequently Asked Questions (FAQs)

Below are the most frequently asked questions about VA home loans.

How Many Times Can You Use a VA Loan?

You can borrow a VA home loan as many times as you want, given that you have repaid the previous loan in full and can qualify for VA loan benefits again.

What Is the VA Guarantee?

The US Department of Veterans Affairs (VA) guarantees a certain amount of the loan. This means that if a borrower defaults in any way on paying back the loan, the department will pay back a certain amount to the lender, depending upon your VA loan entitlement.

This VA guarantee makes it easy for lenders to provide mortgages at lower interest rates.

What Is the VA Funding Fee?

The VA funding fee is a one-time payment made by applicants for the VA home loan to the department. The more you pay as a downpayment, the less your funding fee will be.

If I’ve Previously Used a VA Mortgage, Can I Use It Again?

Yes, as long as you qualify, you can use your VA loan benefits as many times as you want.

What if I Don’t Meet the Minimum Service Requirements?

If you don’t meet the minimum service requirements for a VA Loan defined by the VA, you might still qualify for the loan if your discharge falls under one of the following categories.

  • You were discharged due to a reduction in forces, early-out or at the convenience of the government.
  • You were discharged due to a service-connected disability.
  • You served at least 21 months of the two-year enlistment and were discharged early.

Can I Get a Veterans Manufactured Home Loan if the Home Is Not Permanently Affixed?

Yes, you can. To get a veteran manufactured home loan for a house that is not permanently affixed, you must ensure that the house is attached to the land you own. Once you can prove this, you can qualify for a veteran’s manufactured home loan.

Can a Spouse Benefit From VA Loans?

If you meet any one of the below conditions, you can qualify for a VA mortgage as a spouse.

  • You survived your spouse who passed in the line of duty or from a service-related condition, injury, or disability.
  • You survived your veteran going MIA while on service, or they were a POW. (Limited to one-time use.)

What Is Veterans Mortgage Relief?

Veterans Mortgage Relief are programs that help veterans avoid wrongful foreclosures and excessive interest rates.

VA Loan Pros and Cons

How Much Of A VA Home Loan Can I Afford?

Income, debts, and other expenses influence how much you can afford. In terms of affordability, the VA says the amount is reasonable if it doesn’t push you above a debt-to-income ratio of 41% (the total monthly debt payments divided by your gross monthly income).

The biggest advantage of VA loans are that you don’t have to count your Military Basic Allowance for Housing (BAH) as income or pay monthly mortgage insurance. Therefore, if you receive this monthly BAH, and it covers most or all of your housing costs, your debt-to-income ratio can be lower than 31%.

How Long Do You Have to Live In a House With a VA Mortgage?

Generally, you have to move into your home within 60 days of closing. It is not necessary to live in the home for a certain amount of time before selling it. However, if you are considering renting a home you purchased with a VA home loan, the expectation is that you occupy the house as your primary dwelling for 12 months when you receive a VA mortgage.

How Many Times Can You Get VA Loans?

You can get VA loans as many times as you wish. Keep in mind that the rules and requirements may change each time you apply for a new VA home loan. In most instances you can only carry one VA mortgage at a time, so you would probably have to payoff your existing mortgage before qualifying for the next one.

Also, make sure you don’t have any unpaid periods of active duty service when applying again. You also must wait at least two years to reapply if your initial application was denied or withdrawn.

VA Loan Rates by Credit Score

While it is not necessary for you to have an excellent credit score to qualify for VA loans, you must satisfy the lender’s requirements by having a minimum credit score of 620.

VA loan rates depend upon many factors, like market conditions, your credit history, debt-to-income ratio, and credit score.

While some of these factors are out of your hands, you can definitely control your credit score. An applicant with a good credit score will be quoted a lower interest rate than an applicant with a bad or fair credit score, resulting in some major savings.

Here’s an estimate of what your monthly payment and APR would look like with different credit scores.

Credit Score APR Monthly Payment
760-850 2.75% $817.00
700-759 2.75% $817.00
680-699 2.75% $817.00
660-679 2.875% $830.00
640-659 3.0% $844.00
620-637 3.25% $871.00

Additional VA Home Loan Uses

Contrary to popular belief, VA loans can be used for more than just your primary residence. In fact, there are multiple VA loan options available for you to choose from.

VA Loans and Second Homes

Generally, second homes are meant as an investment property or vacation home.

So, can you get a second home with your VA mortgage benefits?

VA home loans are revolutionary mortgage programs that allow people to purchase a primary residence. So, no, you can’t. 

However, you may be able to work around this and use the additional benefit to purchase two homes.

Here’s what you need to understand:

With VA home loans, you don’t need to live on the property for most of the year. However, you can earn rental income by living in one house and renting the other.

If you’re wondering how to get a VA home loan for a second home, you must fully understand the concept of full entitlement and speak with a VA-approved lender.

Multi-Unit Homes and VA Loans

VA loans can also be used to purchase a duplex or multi-unit building. However, you must meet the eligibility guidelines of the department and lenders.

Here are some general requirements for VA loans you must meet:

  • The house must not be in natural disaster hazard areas, like near volcanoes.
  • The house must be used as a primary residence only.

The VA can approve a loan for a house with one to four units. This includes duplex properties and multi-units. The eligibility criteria and requirements are the same as for a one-unit home.

VA Loans and Rental Properties

Though the US Department of Veterans Affairs (VA) does not provide loans for rental or investment properties, it does provide mortgages for multi-unit properties.

So, if you are planning to live in one unit and rent the others, you can use your VA homes to earn a rental income with up to four total units.

In addition to meeting the department’s and lender’s requirements, you must also take care of the occupancy requirements if this is the route you want to take.

Some lenders might expect you to prove that you’ll be living in the house for at least 12 months after the loan closing.

For multi-unit homes to qualify for VA loans, they must meet unique guidelines that differ from single-unit homes.

All units must have separate utility services or joint water, sewer, gas, and electricity lines. The house must also have individual shut-offs for all units. 

Buying a Condo With a VA Loan

Applicants may be able to get a VA home loan to buy a condo or condominium. However, they must meet some additional requirements that might differ from a one-unit or multi-unit home.

Generally, a condo complex must be on the list of condos approved by the VA. However, if a condo is not in a VA-approved development, borrowers can get the help of their private lenders to receive approval.

Your lender will be required to send a written request to the department along with some documentation.

Here’s a list of things to know when opting for a condo:

  • In some cases, it can take months to receive approval for a condo.
  • After the VA approves the condo, the approval is for a lifetime.
  • The VA can flag a development if the occupancy rate is low.
  • VA approval for new developments depends on the number of units sold.

Buying a Manufactured Home With a VA Loan

Current and former service members can also use their hard-earned military benefits to purchase a manufactured/mobile home. A manufactured home is a house built entirely in factories that are towed to the home site.

The house must meet the building codes defined by the U.S. Department of Housing and Urban Development (HUD) to qualify for a VA loan. The home must also have an identification plate outside and a data plate inside stating all the specifications.

To qualify for a manufactured home VA loan, the house must be affixed to a permanent location and classified as a real-estate property.

When May a VA Loan NOT Be the Best Choice?

VA Loan Assumption

One of the most unknown yet noteworthy benefits of VA loans is that they are assumable.

A VA loan assumption means that a borrower takes over or assumes a mortgage, given that they are approved for the loan. In simpler words, assumption means signing over your debt to another applicant who can meet all the eligibility criteria and requirements for the loan.

Requirements for Assuming VA Loans

To qualify for VA loan assumption, the borrower must meet the following conditions:

  • The borrower must meet credit and income requirements.
  • The processing fees must be paid in advance.
  • The existing mortgage must be current—all the dues must be cleared before closing.
  • The borrower must agree to assume all aspects of the loan, including repayment plans.
  • The new or original owner must pay the funding fee, which is 0.5 of the existing amount.

How to Assume a VA Loan?

Both veterans and non-veterans can assume a VA loan, given they meet the guidelines and eligibility criteria.

Generally, there are two ways to assume VA loans.

  1. The new buyer is a veteran who can substitute his eligibility for the seller’s eligibility.
  2. The new buyer can meet the payment guidelines of the mortgage.

The second step is the safest method, as it would only hold the new buyer responsible in case of default.

Finding Assumable VA Loans

To find an assumable mortgage, you can search online and check out your local newspaper. Believe it or not, many people still post “assumable homes for sale” in newspapers.

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