VA Loans: All Your Questions Answered

A “VA loan” is a mortgage guaranteed by the Veterans Administration. It was created in 1944 and signed into law by President Franklin D. Roosevelt.

VA loans provide veterans and/or their surviving spouses with a federally guaranteed mortgage with zero down payment, otherwise known as 100% financing.

It’s one of the few places a prospective homeowner can still buy a house with zero down, now that the FHA requires 3.5% down and most conventional mortgage lenders require 10% or more.

The loan program, also referred to as the GI Bill, has been highly successful and has helped millions of American veterans and their families acquire a home.

VA Loan Eligibility Requirements

VA loans have varying eligibility requirements depending on the duration and type of military service performed. Veterans who served on active duty for 90 days during wartime, or 181 or more continuous days during peacetime are generally eligible.

There is also a two-year requirement if the veteran enlisted and began service after September 7, 1980 or if the veteran was an officer and began service after October 16, 1981. Additionally, there is a six year requirement for National Guards and reservists along with other specific criteria.

Unremarried surviving spouses of a servicemember missing in action or a prisoner of war may also be eligible. The best way to see if you’re eligible for an VA loan is to visit the following website, which lists all eligibility criteria.

You can apply for and obtain a VA loan with any bank or lender that participates in the VA home loan program. To prove eligibility, you will need to get a Certificate of Eligibility from the VA, which your bank may be able to complete for you.

Keep in mind that a VA loan must be used for personal occupancy only (no investment properties), and can only be issued by qualified banks and lenders.

Types of VA Loans

You can get your hands on a VA purchase loan, a VA refinance loan, or a VA streamline refinance, the latter being for those with existing VA loans that want to lower their interest rate without jumping through eligibility hoops.

Prospective homebuyers can borrow up to 100% for a purchase without paying private mortgage insurance and existing homeowners can borrow up to 100% loan-to-value (LTV) for a rate and term refinance (or 90% for a true cash-out refinance).

There’s also the streamline VA refinance program, known as an Interest Rate Reduction Refinancing Loan (IRRRL), which has no maximum LTV.

VA loans can be both fixed-rate mortgages or adjustable-rate mortgages, with the 30-year fixed, 15-year fixed, and 5/1 ARM common options.

A VA funding fee of 0% to 3.3% of the loan amount must be paid to the VA, and can be financed on top of the total loan amount.

Benefits and Advantages of VA Loans

VA loans come with a number of benefits and advantages that can make them a solid choice above conventional options.  Let’s take a look at some common Q&A.

Do VA loans require a down payment?

No. Perhaps the biggest advantage is the lack of a down payment requirement, which was previously mentioned. Additionally, mortgage rates on VA loans are typically cheaper than those on conventional mortgages, though that will vary based on your unique borrower profile.

So you could wind up with a lower rate and less out-of-pocket expenses, which is certainly helpful for the cash-strapped borrower.

Additionally, VA loans are generally easier to qualify for than other mortgages, though there may some red tape proving eligibility and what not.

Is there a maximum VA loan amount?

Once again, the answer is no.  The VA does not limit how much you can borrow, though there are limits on how much liability the VA is willing to assume.  Put another way, lenders won’t go above the VA county loan limits, which vary from county to county.

The VA loan limit is aligned with the conforming loan limit of $417,000, though there are high-cost counties that go much higher, such as Arlington at $692,500, Los Angeles at $687,500, and San Francisco at $1,050,000

Borrowers can get loans up to these amounts without a down payment.  But if the loan amount exceeds these limits, a down payment may be required.  A down payment may also be required if a veteran has already used their entitlement and it hasn’t been restored.

Do VA loans require a minimum credit score?

Aside from not needing a down payment, there isn’t a minimum credit score requirement for VA loans. However, most lenders that originate VA loans still require a minimum credit score, such as 620 or higher. So it can be somewhat misleading.

That said, you should still do your best to stay on top of your credit if you want the lowest mortgage rate possible

[What credit score do I need to get a mortgage?]

Do VA loans require mortgage insurance?

Finally, VA loans do not require you to pay mortgage insurance, which can obviously increase the cost of the monthly mortgage payments and the overall cost of your mortgage.

However, the VA does collect a funding fee, which insures your loan against default.

Do VA loans cover manufactured homes?

This always seems to be a popular mortgage question, regardless of loan type. The short answer is yes, you can use a VA loan to buy a manufactured home and/or lot.  However, the trick is finding a lender out there willing to provide VA financing for a manufactured home.

So it’s a yes according to VA eligibility, but a maybe in terms of finding a lender willing to extend the loan. In short, it might require a bit more legwork to track down someone willing to offer the financing.

Do VA loans require an appraisal?

If purchasing a home with a VA loan, an appraisal will be required. This is for your protection too to ensure the home is worth what you’ve agreed to pay for it.

An appraisal is also required if you’re attempting to pull cash out of your home. Conversely, if you’re simply looking to reduce your mortgage rate via an IRRRL, no appraisal is required.

Do VA loans have closing costs?

Like all other mortgages, VA loans have closing costs, which is completely standard and normal. However, the VA does have strict rules when it comes to closing costs.  Only certain fees are considered “allowable,” including:

- Loan origination fee (typically 1% of the loan amount)
Loan discount points (optional to lower your interest rate)
– Credit report
– Appraisal fee
Hazard insurance and property taxes
– VA funding fee
Title insurance
– Recording fee

If there are other fees connected to the loan, they cannot be paid by the borrower. So if it’s a purchase, the former owner could provide seller concessions, the real estate agent could provide a credit, or the bank could provide a lender credit to cover the non-allowable closing costs.

Do VA loans require an escrow account?

The VA does not require lenders to maintain escrow accounts, though most impose them to ensure borrowers have the necessary funds to pay hazard insurance and property taxes in a timely manner.

In other words, the VA doesn’t explicitly require escrow accounts, but the lender you ultimately work with probably will, so there’s not much way around it. Additionally, there is typically a fee to waive escrows, so it might be cheaper just to escrow.

Do VA loans require reserves?

No, VA loans do not require reserves, which is another plus.  However, if the property being financed is a multi-unit property and you’re using rental income to qualify, six months PITI will be required for reserves.

Additionally, those with non-traditional or insufficient credit may be required to provide reserves.

In summary, if you feel you meet the eligibility requirements for a VA loan, be sure to include this loan in your mortgage search. You may find that another type of home loan is more beneficial, but you should compare all options to be absolutely certain.

In Summary


11 Comments

  1. Johnnie December 19, 2013 at 7:31 pm -

    Nice overview. Seems like a no-brainer for someone in the service. Especially since VA lenders probably understand the complex lifestyles of those who serve.

  2. Alphonse December 20, 2013 at 1:33 am -

    do va loans have pmi that must be paid each month?

  3. Colin Robertson January 23, 2014 at 7:38 pm -

    Alphonse,

    VA loans do not have PMI. PMI stands for private mortgage insurance, and is only applicable to conventional (non-gov) loans.

    There’s no mortgage insurance on a VA loan, but there is a funding fee, which varies based on down payment and military category.

  4. Stephany March 5, 2014 at 2:55 am -

    Great information. I feel a lot more comfortable applying for a VA loan now thanks to this. Most of my questions were answered, but I’m curious if you know which VA loan fees are tax deductible? Thank you.

  5. Colin Robertson March 7, 2014 at 10:33 am -

    Stephany,

    As with other types of loans, mortgage points may be tax deductible if expressed as a percentage of the loan amount (and if other conditions are met). Additionally, the VA funding fee is tax deductible and can be fully deducted in the year it was charged. Mortgage interest and property taxes are also deductible if you itemize and meet other requirements. Speak to your CPA to get full details.

  6. Leonard April 3, 2014 at 8:14 am -

    Good info Colin! Thanks for taking the time to post this.

  7. mike May 27, 2014 at 10:04 am -

    can i get a va home loan with a 580 credit score in idaho sent me an email

  8. Colin Robertson May 27, 2014 at 11:57 am -

    Mike,

    Some lenders are accepting 550 FICO scores for VA now, so as far as credit score is concerned you may qualify. But it depends on the rest of the loan details.

  9. Josh May 30, 2014 at 7:00 am -

    I’m applying for my 2nd VA mortgage (2nd tier), My first will become rental property. Can you confirm I am understanding this properly, my bank didn’t even know 2nd tier existed!

    My first home was $92,000 and I used $34,000 of my entitlement. I live in an area where $417,000 is the VA cap. So…
    $417,000x 25%=$104,250
    $104,250 total available entitlement
    $104,250-$34,000=$70,250 remaining entitlement

    New house
    $189,000×25%= $47,250 needed
    So since my used entitlement plus my new required entitlement is less than $104,250 combined and the total value of both homes is less than $417,000, AND the new home is greater than $144,000, I can use 2nd tier correct?

  10. Josh May 30, 2014 at 7:02 am -

    Also, since both homes are single family, would I be required to carry reserves with a 700 score?

  11. Colin Robertson May 30, 2014 at 12:29 pm -

    Josh,

    It looks like the VA guaranty is well above 25% based on your second-tier entitlement and the purchase price, so you shouldn’t need a down payment. And reserves shouldn’t be required based on what you said.

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