Homebuying Advice: VA Loans
What You'll Learn: Everything you need to know about VA loans and what you need to qualify for one.
EXPECTED READ TIME: 8 MINUTES
If you’re looking to put down roots and become a homeowner as a veteran or servicemember, a VA loan can help make your dream achievable. The VA home loan program provides military members with favorable loan terms and amazing benefits that you won’t find in other mortgage options.
In this article, we’ll share advice on VA loans in depth so you can determine if one is the right option for you.
Introduction to VA loans
VA loans are government-backed mortgages guaranteed by the U.S. Department of Veterans Affairs and offered by VA-approved lenders. They are designed to assist veterans, servicemembers, and surviving spouses achieve their dream of homeownership. Compared to conventional mortgage options, VA loans offer eligible borrowers a long list of benefits, including:
- Down payment – As low as zero down
- Competitive interest rates
- Credit score – No minimum set by the VA; most lenders will require 620 or higher
- Limits on closing costs
- No private mortgage insurance — note that there is a VA funding fee
- Refinance options
The main goal of the VA home loan program is to help veterans finance their home with favorable terms they can’t get through other mortgage types.
How do I get a VA loan?
While the steps to being approved for a VA loan may look similar to other mortgages they’re typically easier to qualify for, plus there are a few key differences you’ll want to remember. Let’s dive into them step by step:
Step 1 — Eligibility
In order to be approved for a VA loan, you must meet the service eligibility standards set by the VA and the financial guidelines required by your lender. You can review the service eligibility requirements in depth on the U.S. Department of Veterans Affairs website. The specific requirements you must meet vary depending on your military service, but here are the basic guidelines to qualify:
- Veterans who served after August 2, 1990 are eligible after 24 continuous months of service
- Current active duty servicemembers are eligible after 90 continuous days of service
- National Guard members and Reservists are eligible after 90 continuous days of service
- Surviving spouses of veterans who have passed away (can’t be remarried)
Financial requirements for a VA loan are determined by the lender you choose to fund your mortgage. However, there are common guidelines that apply to most VA loan applications, including:
- A VA certificate of eligibility (COE) – Proof you meet the VA’s military criteria
- Credit score – Most lenders will require 620 or higher
- Proof of income – Documentation showing consistent income sources
- Down payment – As low as zero down; however, choosing to provide a down payment may reduce your loan’s principal balance
You can apply directly for a COE online or print this form from the VA website and mail it in.
Step 2 — Choosing a VA-approved lender
Once you’ve confirmed you meet the eligibility requirements for a VA home loan, the next step is finding an approved and trusted mortgage lender. Not all lenders are approved by the VA, so you’ll have to do some research to find those that specialize in and showcase they are fully knowledgeable about VA loans. You should also be able to trust your chosen lender to have your best interest in mind throughout the homebuying process.
Many military families find that credit unions are a great lender option. While not every credit union offers VA loans, those that do are committed to serving their members and helping them before, during, and well after the homebuying process.
After you’ve narrowed down your list or picked a trusted lender, it’s time to submit your application to get pre-qualified and pre-approved. While it’s not an official stamp of approval, it will help you understand how much home you can afford based on various financial factors like income, credit, VA entitlement, and more.
Step 3 — Finding your new home, VA appraisals, and inspections
At this point, you probably have confirmation that you qualify for a VA loan. However, the home you decide on will also have to meet the VA’s property requirements in order to receive funding approval. These established set of standards are known as Minimum Property Requirements (MPRs) and are used to assess a property during the home appraisal process. This list of MPRs ensure that a home meets the safety standards set by the VA.
Chapter 12 of the VA Lenders Handbook details the appraisal criteria, but the MPRs will generally fall under the following categories:
- Residential property
- Space/square footage
- Safe access
- Pests and rot
- Stable roof
- Clean water and sanitation
- Heating system
- Mechanical systems
- Lead-based paint
These MPRs must be assessed by a VA-approved appraiser and completed before your lender is able to approve your mortgage application. Note, that the appraisal is different from a home inspection. Home inspections are not required and performed by a third party who checks the home for general damage and flaws.
VA loan costs
All mortgages include closing costs and fees that are charged for the various services it takes to close the loan. Loan origination fees, appraisal fees, title searches, title insurance, and escrow deposits are just a few examples of the fees included. These costs ensure the seamless transition of property ownership. Typically, these closing costs can range from 1% to 6% of your loan’s total balance.
VA mortgage closing costs are incredibly similar to those of conventional mortgages, but they also include a unique cost known as the VA funding fee.
VA funding fee
The VA funding fee is a one-time charge that helps lower the cost of a VA loan. It can be paid up front or rolled into the overall cost of the loan. This fee is charged by the U.S. Department of Veterans Affairs, not the lender. More often than not, borrowers find that the benefits of a VA loan, such as the no or little down payment requirement, outweigh the cost of this fee.
Preparing to purchase with a VA loan
Before you jump into the homebuying and VA loan application process, it’s important to take stock of your current circumstances. Many VA borrowers may decide it’s better to use their benefits as veterans once their military service is complete, as homebuying is an involved process that requires dedicated attention. From collecting and organizing your paperwork to touring potential homes and being there to sign at closing, active military members may find it all difficult to juggle on top of the requirements of their service.
However, it is entirely possible to purchase your dream home during deployment or a change in station. Thanks to the internet, you can narrow down your neighborhood options through research, hire real estate experts, and tour homes via video at the click of a button. Hiring a trusted real estate agent who specializes in VA home loan purchases can help you through every step of the process. It’s also incredibly helpful if you have a spouse or family members you can enlist to represent your interests in person, too.
The VA loan checklist
Whether you choose to jump into the homebuying process as soon as you’re done reading or you decide to use your VA loan benefits later on, it’s good to know what will be required from you. That’s why we’ve compiled this checklist, detailing the important documents and information you’ll need to provide at various steps of the VA mortgage process.
- VA Certificate of Eligibility (COE)
- Government-issued ID
- Credit score (your lender will pull and confirm your credit during pre-approval)
- Bank statements from the last two months
- Pay stubs from the last 30 days
- Tax returns – business and personal – from the last two years (if applicable)
- W-2s or 1099s for the past two years (if applicable)
- Retirement statements from the last two to three months (if applicable)
- Social security award letter (if applicable)
- Property appraisal
- House contract
- Inspection documentation
At the end of the day, as long as you know your options and stay organized, a VA loan will bring you that much closer to purchasing the home of your dreams! If you’re ready to start the process of obtaining a VA loan, be sure to download our eBook for a detailed explanation of the process.