VA home loans are one of the most popular homebuying options for active and former service members and eligible spouses in the real estate market.
In 2020, the U.S. Department of Veterans Affairs announced that it achieved a record year with its loan program by guaranteeing over 1.2 million home loans totaling over $360 billion.
The reason for the popularity of VA loans for home purchases is not hard to understand. There are financial benefits to VA home loans not found with conventional mortgages and other loan types.
This benefit program has helped millions of service members, veterans, and military families achieve homeownership.
You or your spouse may have served or are currently serving in the armed forces, but how can you determine if you’re qualified for a VA home loan or refinance?
First, let’s see why VA home loans are worth checking out.
VA home loan benefits
If you’ve served or are currently serving in the military, the VA mortgage loan was created to help you achieve homeownership.
No downpayment requirement
This feature is undoubtedly the most significant advantage of a VA home loan. Qualifying borrowers don’t need to save thousands of dollars for a downpayment before they can even think about looking at a new home. Since the program doesn’t require down payments or mortgage insurance, you may be required to pay a VA funding fee.
No need for private mortgage insurance
Private mortgage insurance, or PMI, protects the lender in cases of foreclosure or default on mortgage payments.
Traditional lenders (and some private lenders) require borrowers to pay PMI if they don’t have at least 20% of the purchase price as a downpayment.
Because the VA backs the loan, they’re responsible for covering the lender if you can’t pay your mortgage.
Avoiding PMI could save thousands of dollars over the course of your loan.
Lower interest rates
The VA loan program has the lowest average fixed rates in the mortgage market—typically half to a full percent lower than standard mortgage interest rates.
Easier credit requirements
While most VA mortgage lenders will use credit score benchmarks to assess a borrower’s risk of default, the minimums for VA loans are typically lower than other mortgages.
Other VA home loan benefits
- Limits on closing costs, which can possibly even be paid by the seller
- Repeat usage—with conditions, VA home loans can be used multiple times
- No prepayment penalties—pay off your mortgage early and avoid charges
- Foreclosure help—VA works to help vets in jeopardy to keep their homes
With this many benefits to VA home loans—how can you find out if you are qualified to access this loan program?
What are the requirements for a VA home loan?
One of the essential requirements for VA loans will be determining your VA loan eligibility.
Minimum credit score requirement
For your first VA loan, most mortgage lenders have a minimum credit score requirement of at least 620. Some lenders won’t consider your credit score if you’re just refinancing your mortgage loan.
VA funding fee
The VA funding fee is a one-time payment with a VA loan that supports the program. While some eligible service members may be exempt from the VA funding fee, expect to pay a percentage of your loan amount. Typically VA funding fee amounts range between 1.4% and 3.6% of your mortgage loan.
Minimum service requirements
- Applicant must have completed 90 days (minimum) of active duty service
- Six years of service completed in the National Guard or Reserves
- In peacetime, 181 days of active duty service completed
- 90 days of cumulative service (according to Title 10 or 32—30 days must be consecutive if under Title 32)
Qualifying spouses of military service members who passed away in the line of duty or due to a service-related disability can also apply.
Certificate of Eligibility (COE)
When applying for a VA loan, the lender will need to see your certificate of eligibility or COE. The COE will provide your entitlement, which shows how much you can borrow without a downpayment.
You’ll need to file an application to obtain a COE with your military branch. By mail, your certificate can take up to six weeks to arrive.
However, if you have access to an eBenefits portal, you might be able to receive your COE confirmation in less time than it takes to make a cup of coffee.
Don’t meet the service requirements due to discharge?
If you don’t meet the service requirements because you were discharged, it may still be possible to receive your COE.
Discharges due to the following may still be eligible:
- Early out (you’re required to have served at least 21 months of a 2-year enlistment)
- Because of the convenience of the government (having served a minimum of 20 months of a 2-year enlistment)
- Reduction of force
- Certain medical conditions
- Because of a service-connected disability
How do I apply for a VA loan?
If you’re a veteran or active service member, you don’t need to know your VA loan eligibility before you start the loan process.
Additionally, applying for a VA loan doesn’t mean you’re obligated to complete the process with the lender.
The initial contact you make with most lenders, like Go Mortgage, can give you a reasonable, no-strings-attached idea of your ability to be approved for a VA home loan through the pre-approval process.
The loan process for VA home loans breaks down into three basic steps:
- Contact a VA-approved lender and start your loan application with a pre-qualification or a pre-approval.
- Verify your eligibility by obtaining your COE through your lender or on your own.
- Complete your application by submitting the paperwork that proves your income requirements (like W-2s, tax returns, etc.).
How hard is it to be approved for a VA loan?
There are many aspects to a VA loan and other mortgage products available through VA loan programs.
From IRRRLs (interest rate reduction refinance loans) to VA single-close construction loans and beyond, GoMortgage caters to eligible veterans and active duty servicemembers looking to achieve homeownership.
And if you are not eligible for VA loans, we can find other ways (FHA loans, for example) to get your family a new home.
Contact one of our loan officers today, and together we’ll find the mortgage that’s right for you.
Photo by George Pak