All You Need to Know About VA Loans
All You Need to Know About VA Loans
Q: I’m a retired member of the military and I’m looking to purchase a new home with a VA loan. What do I need to know about this process?
A: Veterans Affairs (VA) loans are one of the most significant financial benefits the U.S. government offers its military veterans. We’ve answered the most commonly asked questions about VA loans.
What are the benefits of a VA loan?
There are several benefits a VA loan has over a conventional mortgage.
First, VA loans offer 100 percent financing to qualifying home buyers. That means you will not be required to make a down payment on your home when you purchase it through a VA loan. This can be a tremendous relief to veterans who are struggling to make ends meet.
Second, a VA loan allows you to purchase a home without paying for private mortgage insurance (PMI) on your mortgage. Other loans taken out with minimal or no down payment require this monthly fee until the buyer owns at least 20 percent equity in the home. Since VA loans are backed in part by the federal government, PMI isn’t necessary. This, too, can provide a new homeowner with significant savings.
Finally, other benefits of VA loans include lower interest rates, relaxed credit standards and the absence of a prepayment penalty.
How do I begin the application process for a VA loan?
Qualifying for a VA loan requires a Certificate of Eligibility, or COE. This proves you meet the eligibility requirements for a VA loan. For this, you will need to meet ONE of the following service requirements:
- 181 days of service during peacetime
- 90 days of service during wartime
- 6 years of service in the Reserves or National Guard.
- Under specific circumstances, surviving spouses of service members who have died while in the line of duty may be eligible for a COE as well.
If you meet one of the above criteria, you can apply for a COE through any of the following means:
- Ask your lender. An approved VA lender can easily assist you in obtaining your COE.
- Apply online. You can apply for your COE through the eBenefits portal.
- Apply via mail. Fill out an application form for your COE and send it to the address on the form via mail.
Does a COE automatically guarantee I’ll be approved for a VA loan?
Obtaining a COE does not guarantee you will receive a VA loan. You may be disqualified for other reasons, including discharge from service under dishonorable conditions, having had a past home purchased with a VA loan go into foreclosure or trying to purchase a property that does not meet the federal requirements for a VA loan.
Will a VA loan cover a mortgage of any size?
For years, VA loans have had strict maximums which varied by county. The average limit for a VA loan in 2019 was $484,350. Veterans were permitted to take out loans which exceeded these limits, but were required to make a down payment equal to 25 percent of the difference between the county limit and the actual loan amount.
Effective Jan. 1, 2020, these limits are no longer in play for borrowers with full entitlement to VA loans. Qualifying veterans can now purchase a home in more expensive areas without any down payment.
It’s important to note, though, that VA loan limits are still in effect for veterans who have one or more active VA loans open, or who have defaulted on a VA loan in the past.
Are there any hidden fees associated with a VA loan?
The only fee unique to VA loans is the funding fee. This nominal fee, created to help offset the taxpayer’s burden for covering VA loans, varies by loan size and increases with each subsequent VA loan you open. For veterans purchasing their first home through a VA loan, the funding fee is 2.3 percent of the entire loan. You’ll have the option of rolling the cost of the fee into your loan or paying it upfront.
You may be eligible to have the funding fee waived if you are a disabled veteran or the surviving spouse of a service member killed in the line of duty.
Are all VA home loans alike?
There are actually five types of VA home loans:
- The Purchase Loan is the most popular VA loan. It allows homebuyers to take out a loan with a competitive interest rate and generally with no down payment.
- The Cash-Out Refinance Loan is a VA guaranteed loan of up to 100% of your home’s value.
- The Interest Rate Reduction Refinance Loan refers to the standard refinancing of a VA loan.
- Adapted Housing Grants are special VA loans allowing veterans with service-related disabilities to purchase, build or renovate a home to meet their access and mobility needs.
The Native American Direct Loan (NADL) Program gives Native American veterans the same benefits as a regular Purchase Loan and the ability to buy, build or improve homes on Federal Trust Land.
If you’re interested in opening a VA loan now or in the future, stop by Community Resource. As a VA-approved lender, we can walk you through the process until you are ready to purchase your dream home.