All you Need to Know About VA Loans
VA home loans are one of the best mortgage programs available today. Veterans of the military, as well as certain active members, may be eligible to receive 100% financing at low, competitive interest rates and with flexible guidelines. It doesn’t get much better than that!
Keep reading to learn everything you need to know about the VA no money down home loans.
What are VA Loans?
A VA loan is 100% financing for eligible borrowers. In order to qualify you must:
Have served in the military during wartime for 90 days or more
Have served in the military during peacetime for 181 days or more
Have served in the National Guard or Reserves for 6 years or more
Have any discharge besides dishonorable
If you meet the service requirements, you may be eligible for 100% financing. As of 2020, there are no more loan limits for veterans. This means you can get 100% financing for any loan amount, as long as you qualify. We’ll discuss the qualifying requirements below.
The most important thing to realize is that you don’t have to worry about loan limits or down payments any longer. Prior to this year, veterans were subjected to conforming loan limits. If you wanted to buy a home that exceeded the limit, you had to put 25% of the difference between the loan limit and the purchase price down on the home. This made it difficult to purchase homes that exceed the loan limit. Today that’s not an issue.
However, it’s important to note that loan limits do still apply to veterans that currently have an active VA loan now or that defaulted on a VA loan in the past. If you fall within this category, you’re subject to the Federal Housing Financing Agency limits, which in most areas is $510,400, but is higher in some high-cost counties.
Obtaining Your Certificate of Eligibility
Lenders still need proof that you are eligible for a VA loan. They do this with the Certificate of Eligibility. This certificate from the VA lets lenders know that you are eligible, which means the VA will guarantee the loan for them. If you don’t have your COE, we can probably pull it for you as we have access to the system online.
If you want to obtain it yourself, you can do so through the VA Benefits Portal.
Lenders need the certificate as it’s the only official way to tell that you are eligible for the loan and that the VA will guarantee the loan for the lender.
Qualifying for VA Home Loans
Veterans have the distinct advantage of flexible underwriting guidelines for VA home loans. For example, the VA doesn’t have a set minimum credit score. Each VA lender can determine which credit score they are willing to accept. On average, however, lenders like at least a 620 score which is a low score considering you can get a loan with no down payment.
In addition to the relaxed credit score guidelines, VA mortgages require:
No maximum housing ratio stated (some lenders may have their own)
Maximum 41% total debt ratio (your total debts versus your gross monthly income)
Stable employment that shows the promise to continue for the near future
No defaulted federal loans in the past
As you can see, VA loans have flexible guidelines making it easy for veterans to secure housing.
The VA Funding Fee
VA loans, unlike FHA loans, don’t require mortgage insurance. Even though you may borrow as much as 100% of the home’s sales price, you don’t have to put money down or pay insurance premiums. The VA guarantees part of the loan for lenders by charging a funding fee upfront.
You pay the funding fee in cash at the closing. If you can’t afford it, you may inquire about wrapping the fee into your loan amount. As of 2020, the funding fee is the same for all members of the military, regardless of the branch you served. Instead, the funding fee is based on your down payment and is as follows:
No down payment = 2.3% funding fee
5% or higher down payment = 1.65% funding fee
10% or higher down payment = 1.4% funding fee
This pertains only to home purchases. If you refinance your VA loan, you’ll pay different funding fees as follows.
Cash-out refinance funding fees:
2.3% funding fee
VA streamline refinance funding fees:
0.5% funding fee (this fee didn’t change)
VA Refinance Options
As we discussed above, the VA has different financing options.
The VA cash-out refinance allows you to tap into your home’s equity. You can borrow up to 100% of the home’s value with this loan. For example, if you have a mortgage balance of $180,000 and your home is worth $210,000, you can take out up to $210,000 taking the proceeds of the loan after paying the fees and your original VA mortgage off in full. You must qualify for the cash-out refinance, just like a purchase loan.
The VA streamline refinance is their version of the rate/term refinance. You may only use this program if you can lower your interest rate, get out of an ARM loan, or can benefit in some other way by refinancing. The VA needs to know that there is a net tangible benefit for refinancing. You may only borrow up to the outstanding loan amount plus any applicable fees. You cannot receive cash in hand with this loan program. The streamline refinance program doesn’t require you to verify your income, credit score, or even your home value, though. It’s truly a streamlined product.
VA loans are one of the best ways for veterans to secure home financing. With no down payment requirements, flexible underwriting, and competitive fees/rates, it’s a hard loan to beat. It’s important to work with a VA approved lender like First Financial Mortgage that has the experience, knowledge, and support available to walk you through the process of securing your VA loan.