A VA loan can help you get into a property quickly with minimal upfront costs. Not sure if a VA loan is right for you? In this ultimate guide to VA loans, you’ll learn everything you need to know about this type of loan.
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With a VA loan, you can transform your finances and start building equity in real estate. Let’s explore this amazing opportunity.
What is the VA loan?
The Department of Veterans Affairs backs the VA loan. VA loans are issued through private lenders, which include mortgage companies and banks. Although the Department of Veterans Affairs does not provide the loans directly, it provides a guarantee to lenders that work with veterans within a framework set up by the government.
The goal of the VA loan program is to help veterans and military members achieve the dream of homeownership with minimal upfront costs. As a veteran, you won’t need great credit or a large down payment to close on a home.
In fact, veterans can get into a home with as little as $0 down. That puts homeownership within reach for the deserving veterans of our country.
VA Loan Benefits
So what are the benefits of using a VA loan? Here are the top benefits that you should be aware of:
When you look at the conventional wisdom of putting down 20% on a home purchase, buying a home might feel out of reach. Luckily, there are other options to help you lower the upfront down payment burden with the help of a VA loan.
Although you can put down more than 0%, most veterans will be able to qualify for a VA loan without any down payment at all.
Private mortgage insurance will add to your monthly housing costs. To be clear, private mortgage insurance is something that protects the lender in case you default on the loan. But it is just another cost for you to carry.
Luckily, the VA loan doesn’t require any PMI. That’s because the government is backing the loan. So if you default, the Department of Veterans Affairs will cover the losses facing the lender.
Easier to qualify
If you are a veteran, then you will likely be able to qualify for a VA loan. Although there are some financial requirements in place, they are relatively limited. With that, you can likely qualify and get into a home quickly.
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VA Loan Limits
When you are shopping for a home loan, the right home loan will include a high enough limit for the home you are searching for. The VA loan follows the same loan limits set by the Federal Housing Finance Agency.
In 2021, the maximum loan limit for a single-family home is $548,250 as a baseline. However, in high cost of living areas where the median home value exceeds the baseline by 115%, the loan limit is increased to $882,375.
With so much variability, you’ll find that the loan limits vary based on your county. The best way to determine your loan limit is to check out the Federal Housing Finance Agency nationwide map that shows the maximum loan limits across the U.S.
Once you know the loan limit for your county, you can start your home search with an appropriate budget in mind.
What are the VA loan rates?
As with all mortgage rates, VA loan rates fluctuate regularly. However, VA loans are typically lower than the rates associated with conventional loans.
If you are considering a VA loan, then take some time to shop around and compare rates. In most cases, you’ll find that the VA loan offers a lower interest rate than other loan options. If nothing else, the competitive rates will not be a disqualifying factor as you shop around for the best opportunity.
Who qualifies for VA loans?
So, the VA loan sounds like a great opportunity to dive into home ownership. But who qualifies for a VA loan? Here’s what you need to know
VA Loans Eligibility
In order to qualify for a VA loan, you’ll need to meet a variety of criteria. First, you’ll need to obtain a Certificate of Eligibility. After that, your financial details will come into play to determine if you can move forward.
VA Loans Certificate of Eligibility
So how can you qualify for a Certificate of Eligibility? You’ll have to meet one of the following criteria:
- Served 181 days of active service during peacetime.
- Served 90 consecutive days of active duty during wartime.
- Served more than 6 years with the National Guard or Reserves.
- Be the surviving spouse of a service member that lost their life in the line of duty. In most cases, you cannot be remarried.
- Be the surviving spouse of a service member who lost their life as a result of a service-related disability. In most cases, you cannot be remarried.
- Served in other organizations, including as an officer of the National Oceanic & Atmospheric Administration, a Midshipman at the United States Naval Academy, a cadet at the United States Military, Air Force, or Coast Guard Academy.
If you don’t meet one of the criteria above, you may still qualify if you were discharged for one of these reasons:
- The convenience of the government, if you served at least 20 months.
- Early out, if you served at least 21 months of a 2-year enlistment
- Reduction in force
- Qualifying medical conditions
- A service-related disability.
If you don’t meet these discharge requirements, then you might not qualify for a VA loan. But you can always contact the VA directly to find out. You should call your regional VA loan center at 877-827-3702 if you have questions.
VA Loans Credit Score
The VA loan doesn’t set any minimum credit score requirement. However, that doesn’t mean the lender will not take your credit score into account. But when reviewing your loan application, a lender will be required to review your entire loan profile.
With that, you may be able to qualify for a VA loan with a relatively low credit score. It will come down to the lender’s discretion. But a low credit score shouldn’t hold you back from applying for a VA loan.
How many VA loans can you have in a lifetime?
The good news is that there is no limit on the number of times you can use a VA loan. If you qualify for a VA loan, then you can use the loan again and again.
However, you can only use the VA loan on homes that you intend to live in as a primary residence. Additionally, your first loan must be rapid in full before you can obtain a second VA loan.
What kind of closing costs will I need to come up with for a VA loan?
With a VA loan, the closing costs are different from conventional loans. Importantly, the VA loan comes with a funding fee.
Depending on the size of your down payment, the cost of the funding fee will vary. For example, let’s say you put down less than 5% on a home. With that, your VA funding fee will be 2.3%. But if you put down 10% or more, then the funding fee is 1.4% of the total loan amount.
The purpose of the funding fee is to allow the Department of Veterans Affairs to continue running this program. If you cannot afford the upfront fee, you have the option to roll the funding fee into your total loan amount.
What are the minimum property requirements for a VA Loan?
The goal of the VA loan is to help veterans get into a home. With that, there are some requirements for the property, including:
- The property must have working electric, heating, and cooling systems.
- The property must have an adequate roof that will last for a while.
- The property must have enough size for basic living necessities.
- The property must have a clean and continuous water supply with sanitary facilities.
- The property must be free of lead-based paint.
- The property must be free of wood destroying insects, fungus, and dry rot.
- The property must have safe and sanitary sewage disposal.
- The property must have an access point from an all-weather street, public or private.
- The property must have adequate ventilation and access to attics and crawl spaces.
Additionally, the loan limits we mentioned above will require the property to be under a certain price point.
How to apply for a VA loan
Are you ready to apply for a VA loan? Here’s how to apply.
Get a certificate of eligibility
First, you’ll need to obtain a certificate of eligibility (COE) from the Department of Veterans Affairs. Without the COE, you will not be able to move forward with a VA home loan.
Here’s where you can apply for a VA home loan certificate of eligibility.
A preapproval will help you determine that a lender is willing to work with you. With the preapproval in hand, you’ll have a better idea of what your budget can be.
Find the right property
Once you have the COE, you can start looking for properties. But As you look for the right property, consider the opportunity to house hack. With house hacking, you can completely eliminate your housing expense by having someone else rent a space to cover the mortgage.
Want to learn more about your house hacking opportunities? Read our free House Hacking Quick Start Guide.
Make an offer
It may take some time to find the right property. But once you find it, make an offer. If the seller accepts, you can begin the journey towards closing.
Don’t forget about VA loan closing costs
Closing costs will come into play when you are finalizing the loan. Although you are able to roll the funding fee into the total loan amount, you will have to cover some other costs. Keep that in mind as you consider this option.
Is the VA loan a good option?
Yes. The VA loan is absolutely a good option. But it's not for everyone.
If you are a veteran that qualifies for a VA loan but you have limited cash resources, then the VA loan could be a good fit. You’ll be able to get into a home with minimal upfront costs.
If you are a veteran that qualifies for a VA loan but have enough cash on hand for a larger down payment, then you might benefit from pursuing a different type of loan. You won’t have to pay a funding fee on most other types of loans and you can avoid PMI with a large enough down payment.
Take a closer look at your finances before moving forward. You might decide that your budget is not quite ready to support a mortgage payment. But if it is, then the VA loan can provide the opportunity you need to pursue homeownership.
The bottom line
The VA loan provides an opportunity for veterans to dive into homeownership. If you are considering this option, then take a minute to think about your house hacking options. With the right property, you could eliminate housing costs from your life!
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