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VA Home Loans

One of the benefits of serving in the military is the VA home loans program. VA loans are a great option for veterans, active-duty service members, and qualifying spouses. There are unique VA loan benefits offered to disabled veterans as well.

Robert Harris

January 28, 2022

Backed by the government, VA home loans are issued by banks, credit unions, and mortgage providers. It’s easier to qualify for a VA loan, and 100% financing is available with lower interest rates than a conventional loan. They can be used for the purchase of a home or refinancing. The advantage of government-backed loans is that private lenders are given special guarantees that protect them. This means they can risk offering loans with little to no down payment and forego private mortgage insurance.

Who can get a VA loan?

There are guidelines as to who can apply for VA home loans. If you meet any of these qualifications, you’re eligible:

181 days of active service during peacetime
90 consecutive days of active service during wartime
More than 6 years of National Guard or Reserves or 90 days under Title 32 with at least 30 days being consecutive.
You’re a spouse of a service member who died in the line of duty or their death was connected to a service-related disability. In most cases, you can’t be remarried.

What are the basic requirements?

Down Payment: Zero down – 100% financing
Debt-to-Income (DTI) Ratio limit: 55% (May vary based on other credit factors)
Personal Mortgage Insurance: Not required

VA Funding Fee: Yes. Can be rolled into mortgage and some exemptions
Credit score minimum: 580
Must be your primary residence
Property types: Single-family, Condos, Townhomes, Multi-family, Manufactured

Down Payment

A down payment is a cash payment in the amount of a certain percentage of the home’s purchase price. The VA does offer loans without requiring a down payment, but depending on the lender, you may have to meet other requirements to get 100% financing. Some lenders may expect a higher credit score.

Funding Fees

While you may not need to bring a down payment to the closing, you will need cash to close a VA loan. There are funding fees which pay the cost to the taxpayer (2-3.6 % of the loan amount). These fees are calculated based on numerous factors: How much are you putting down? Is it your first time getting a VA loan? Are you purchasing or refinancing? Funding Fee Exemptions: Surviving spouses, active-duty Purple Heart recipients, veterans receiving disability

Cash Reserves

These are funds in your account that show the lender you can pay your mortgage for the next few months. Most like to see at least two months’ worth of cash reserves. This isn’t always required, but it’s always a smart move to have your own emergency fund set aside with money to cover your expenses for several months. This money isn’t paid to the lender, but they do want to verify you have the funds available.

VA Debt-to-Income Ratio (DTI) Limit

Your debt-to-income ratio compares your monthly debt payment to your monthly gross (pre-tax) income and tells the lender the percentage of your income that goes toward your monthly debt payments (e.g., mortgage/rent, credit card payments, student loans, car loans). Obviously, the lower your DTI, the better. DTI is one of the most significant factors for lenders when qualifying you for a loan. Lenders like to see a DTI no higher than 41% with VA loans, but that number may vary depending on other credit factors. Typically, the higher your DTI the higher your credit score needs to be. You can calculate your DTI before even applying for a loan.

Proof of VA Loan Eligibility

You must have a certificate of eligibility (COE). Your broker or lender can help you with this. If you’re active duty, you will need your LES. Make sure you will have at least 12 months of service left from the date you will close on a new purchase or a refinance. If you don’t have 12 months left, you can’t close a loan until you know your next job and income can be verified.

Summary of VA Loan Benefits

No equity in house needed to refinance a VA loan to lower rate
No private mortgage insurance payment tacked onto your monthly mortgage
Interest rates are typically lower because the loan is guaranteed by the government
Less strict borrower requirements: Typically, no down payment; lower credit score accepted
Exemptions for disabled veterans and spouses of veterans who’ve lost their life in the line of duty or as a result of service-related injury

Access to grants for Special Adapted Housing for disabled

Our loan comparison chart shows how VA home loans differ from conventional loans, jumbo loans, and other government-backed mortgages.

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NMLS #1743685

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