VA Loans 101: How They Work, Who’s Eligible, Advantages and More
If you’re a military service member, qualifying spouse, or veteran, VA loans are a huge benefit worth exploring if you’re considering buying a house.
This special type of home loan can help you secure an affordable mortgage with a competitive interest rate and (usually) no down payment—even if your credit score isn’t stellar.
VA loans are an ideal resource for many military members, but they do have certain eligibility requirements and restrictions that make them different from other loan types. Read on to learn all about VA loans and whether they’re right for you.
What Is a VA Loan?
A VA loan is a mortgage backed by the U.S. Department of Veterans Affairs (VA). The GI Bill of Rights created the VA loan program in 1944 to help veterans reacclimate to civilian life after returning from World War II.
VA home loans are exclusively for active-duty military personnel, eligible spouses, and qualified U.S. veterans. Since VA loans have low interest rates and rarely require a down payment, they can be an attractive path to homeownership.
VA loans are considered non-conforming loans since they don’t fit the guidelines of conventional lenders Fannie Me and Freddie Mac. However, this gives homebuyers more flexibility when it comes to credit score requirements.
There are several types of VA loans:
- VA home purchase loan: A standard mortgage backed by the VA
- VA renovation loan: A VA loan that funds a home purchase, plus the cost to renovate the property
- VA jumbo loan: A VA loan that exceeds your area’s limit for a conforming loan
- VA cash-out refinance: A VA loan that converts home equity into liquid cash
- VA rate/term refinance: A method for refinancing or changing the terms of a mortgage if you don’t currently have a VA loan
- VA interest rate reduction refinance loan (IRRRL): The same as above, but for people who already have a VA loan (also called a VA streamline)
How Do
VA Loans Work?
VA loans can be issued by private lenders, banks, credit unions, or mortgage companies. Since these loans are guaranteed by a government agency, lenders aren’t on the hook if the borrower can’t make their payments. For this reason, VA loans usually have less stringent requirements compared to other types of loans, like conventional loans.
Like any home loan, a VA mortgage requires the prospective homebuyer to complete a home loan application through their lender. Most mortgage lenders (including Delmar Mortgage) offer VA loan products.
Who Can Get a
VA Loan?
You’re eligible to apply for a VA loan if you meet any of the following criteria:
- You’ve served 181 days of active service during peacetime
- You’ve served 90 consecutive days of active service during wartime
- You’ve served 6+ years in the National Guard or Reserves
- You’ve served 90 days under Title 32 with at least 30 of those days being consecutive
- You’re the surviving spouse of a service member who died in active duty or from a service-connected disability
For more details, check out the complete eligibility requirements for VA home loan programs
VA Loan Eligibility Requirements
Aside from the service requirements for VA loans, there are additional criteria your mortgage lender will consider when you apply.
Credit Score
The VA doesn’t require you to have a specific credit score to qualify for a home loan. However, individual lenders may set their own minimum credit score.
Down Payment
VA loans are one of the few loan types that don’t require a down payment. That said, lenders may have specific requirements for zero-down-payment VA loans.
Property Type
In order to comply with VA loan occupancy requirements, the property you buy with a VA loan must be your primary residence within 60 days of purchase. This can be a single-family home, condominium, or multi-family home (as long as you use it as your primary residence).
You can’t use a VA loan to fund an investment property or a vacation home.
VA Loan Eligibility Requirements
Aside from the service requirements for VA loans, there are additional criteria your mortgage lender will consider when you apply.
Credit Score
The VA doesn’t require you to have a specific credit score to qualify for a home loan. However, individual lenders may set their own minimum credit score.
Down Payment
VA loans are one of the few loan types that don’t require a down payment. That said, lenders may have specific requirements for zero-down-payment VA loans.
Property Type
In order to comply with VA loan occupancy requirements, the property you buy with a VA loan must be your primary residence within 60 days of purchase. This can be a single-family home, condominium, or multi-family home (as long as you use it as your primary residence).
You can’t use a VA loan to fund an investment property or a vacation home.
Debt-to-Income Ratio (DTI)
Your DTI compares your monthly debts to how much money you earn per month. The VA doesn’t require a specific DTI to qualify for a home loan, but specific lenders might set limits depending on your credit score, down payment, and equity amount.
VA Loan Limit
The VA doesn’t cap how much money you can borrow, except in the case of impacted entitlement. However, lenders can set a maximum loan amount, which is usually based on the current conventional mortgage limits.
As of 2024, the limit for conventional loans is $766,550 for contiguous U.S. states. If you need a mortgage loan that exceeds that amount, you may want to consider a VA jumbo loan.
VA Funding Fee
Most homeowners who get a VA loan have to pay a funding fee, which covers the cost to taxpayers. VA funding fees can range between 1.4% and 3.6% of the loan amount. If you can’t pay the funding fee upfront, it can be rolled into your mortgage.
Certificate of Eligibility (COE)
To apply for a VA loan, you’ll need to show your lender a VA certificate of eligibility (COE). This proves that you meet all the necessary criteria for the mortgage. To request a COE, refer to this official guide from the VA.
4 VA Loan Benefits
Let’s recap some key advantages of VA loans:
- No down payment requirement
- No private mortgage insurance (PMI) required
- Competitive interest rates (in 2021 mortgage rates for VA loans were lower than conventional and FHA loans)
- Limited closing costs (the VA caps the lender’s origination fee at 1% of the loan amount)
Ready to Apply
for a VA Loan?
VA loans have made homeownership a reality for countless military members, veterans, and their spouses. If you’re in the market for a house and meet the qualifications we mentioned above, applying for a VA loan could be the next step.
Our team at Delmar Mortgage has decades of experience handling the VA loan process, so we’re ready to help you every step of the way.
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