November 19, 2021
Purchasing a home can be a complicated process. That's especially true for first-time buyers who are just learning the ropes. But one thing that doesn’t have to be overly complex is a VA mortgage loan. There are many loan benefits for this type of mortgage. Designed for veterans, service members, and surviving spouses, these mortgages can be a great deal—especially for buyers who are struggling to save for a down payment.
VA mortgage loans have specific eligibility criteria that must be met along with program-specific forms to complete before applying for a VA mortgage. So that you can confidently prepare yourself for the process ahead and decide if a VA mortgage is right for you, let’s walk through several of the most commonly asked questions and facts you might not know about the program.
1. What is a VA home mortgage?
A VA mortgage is a type of home loan the U.S. Department of Veterans Affairs (VA) backs. This government agency makes it easier for veterans and current military members to afford a home. This mortgage requires no down payment, no private mortgage insurance, and has attractive low mortgage rates.
That means these loans can cut both your up-front costs and monthly payment. That's why VA loans are the number one choice for vets and service members.
2. How is a VA home loan different from a traditional mortgage?
Most traditional mortgages want you to put a hefty 20 percent down payment. If you cannot afford the down payment, you’ll have to pay private mortgage insurance (PMI) on top of your monthly mortgage payment. That extra fee ensures your lender gets paid even if you cannot make your payments.
But in the case of a VA mortgage loan, your loan is guaranteed by the U.S. government. That means lenders don’t require these standard fees. Additionally, a VA mortgage gives you the benefit of avoiding prepayment penalties.
3. Who is eligible for a VA mortgage loan?
Many current and former military members—including reservists and National Guard members—are eligible to apply for a VA mortgage loan. In certain conditions, surviving spouses may also be eligible. You will need to meet specific service requirements—ranging from 90 days to six years, depending on the type of service. Check with the Department of Veterans Affairs for complete eligibility requirements.
If you’re eligible, you’ll need to get a Certificate of Eligibility (COE). That confirms your military service to apply for a VA mortgage loan from a lender. You can apply online, through the mail, or potentially through your lender. If you’re applying through your credit union, bank, or mortgage broker, the electronic system could confirm eligibility within a few minutes. But, if you’re applying by mail, be aware the process could take some time.
4. How do you get a VA mortgage loan?
Other than the need to prove your military service with a COE, applying for a VA mortgage loan is much like applying for a traditional mortgage.
Your financial institution will review your credit — looking to see if you have a good credit score and the ability to make monthly payments.
The VA does not require any minimum credit score. But lenders will have their own requirements and can still decide to turn you down due to poor credit. As with any significant loan, it is always best to ensure your credit is in good shape before you apply.
5. Are there any fees associated with the VA Home Loan program?
Yes. Required by law, the VA Home Loan program does charge an up-front VA funding fee. For a purchase loan, the fee ranges from 1.4 percent to 3.6 percent, depending upon the following conditions:
- How much of a down payment you can make (down payments over 10 percent get lower funding fees)
- Whether this is the first time you’ve used your VA mortgage loan entitlement (subsequent uses pay higher funding fees)
The VA funding fee can be pretty steep. But, it’s much less than you would need for a down payment, and it keeps your monthly payment low because you won’t pay for PMI.
Disabled veterans and their surviving spouses are typically exempt from funding fees, making it even easier for them to get into a home. Check with the VA for complete rate details.
6. Are there any additional fees?
Beyond the VA funding fee, you’ll still have the closing costs associated with a traditional mortgage. These fees could potentially include:
- Title insurance
- Credit report
- Property taxes
- Discount points
Like any mortgage loan, you’ll pay an interest rate set by the lender, as well as home insurance and taxes. They can be rolled into your monthly payment and put into an escrow account.
Without the need for a down payment, you’ll pay less up-front. But getting a VA mortgage loan isn’t completely free, even if you qualify to waive the funding fee.
7. What types of properties are eligible for financing?
There are some minimum property requirements and restrictions to what you can buy with a VA mortgage loan. But for most homebuyers, this should not be a problem. You can use your loan to buy a home (or multi-unit property), build a home, refinance your existing home loan (whether it’s a VA or non-VA loan), or buy a manufactured home.
Regardless of the type of home, you’re buying, VA mortgage loans are only for your primary residence. You cannot use a VA mortgage loan to buy a vacation home, second home, or investment property.
However, if you move into a new home but intend to keep your VA mortgage loan-purchased property as a rental, you typically can—as long as you don’t do so immediately. Check with your lender to be sure.
8. Can you get more than one VA mortgage loan?
Yes. However, you must fully pay off one mortgage loan before you can apply for another. Keep in mind that the VA funding fee for subsequent VA mortgage loans will be higher. But, it’s still likely to be a good deal for buyers who cannot manage a 20 percent down payment.
Besides a cash-out refinance, the VA also has an appealing refinance program called the interest rate reduction refinance loan (IRRRL). The loan requires less paperwork and may be able to lower your rate.
9. Is a VA mortgage loan a good deal?
For many borrowers, the answer is yes. These purchase loans offer a combination of no down payment, and no PMI. That makes a VA mortgage loan an appealing way to get into a home without high up-front costs. Plus, these loans have some of the best interest rates around. And since there are no loan limits, borrowers can get a higher loan amount and avoid the stricter requirements of jumbo loans.
However, it’s not necessarily a good deal for everyone. If you have the savings to make a 20 percent down payment on a house, you wouldn’t have PMI with a conventional loan. And if that’s the case, the VA funding fee is an extra expense. So sometimes, a traditional mortgage can be a better buy.
Before rushing in to make a final decision, run the numbers. Take the time to compare rates and the costs associated with conventional mortgage loans versus a VA mortgage with your lender. Then decide which type of mortgage is best for you.
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