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 servicemembers 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 current homeowners can borrow up to 90% loan-to-value for a refinance.
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. Perhaps the biggest 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.
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?]
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.
So if you feel you meet the eligibility requirements for a VA loan, be sure to include them 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.
