If you’re a veteran or currently serving in the military, first of all, thank you for your service! If you’re considering buying a home and want to learn more about VA loans, you’re in the right place. VA loans offer some great benefits and can help you get into your next home with less hassle. Let’s dive into the basics and see how these loans work.
What is a VA Loan?
A VA loan is a type of mortgage that’s available to veterans, active-duty service members, and some military spouses. These loans are backed by the Department of Veterans Affairs (VA) but are issued by private lenders like banks or mortgage companies. One of the biggest benefits is that these loans often require little to no down payment.
At Sparrow Capital, we’ve been helping veterans with VA loans for years. Our highly experienced and professional mortgage experts are here to make the process as smooth as possible.
Types of VA Loans
There are a few different types of VA loans that might suit your needs. Here’s a quick rundown:
01. Purchase Loan: This is the most common type of VA loan. It helps you buy a home, whether it’s your first home or your next one.
02. Cash-Out Refinance Loan: This loan lets you tap into your home’s equity by replacing your current loan with a new VA loan. You can use the extra cash for home improvements or other needs.
03. Interest Rate Reduction Refinance Loan (IRRRL): If you already have a VA loan, this option lets you lower your interest rate or switch from an adjustable-rate mortgage to a fixed-rate one.
04. Native American Direct Loan (NADL): If you’re a Native American veteran or married to someone who is, this loan helps you buy, build, or improve a home on federal trust land.
Why Choose a VA Loan?
There are several reasons why VA loans stand out compared to other mortgage options. Here are some of the key benefits:
- No Down Payment Required (In Some Cases): Depending on your eligibility, you may not need to put any money down. That means you could finance 100% of the home’s cost.
- No PMI: With most mortgages, if you don’t put down at least 20%, you’ll need to pay for private mortgage insurance (PMI). VA loans don’t have PMI, even if you put nothing down.
- No Loan Limits: While you still need to qualify with your income and credit, the VA doesn’t put a limit on how much you can borrow.
- Better Interest Rates: VA loans usually have lower interest rates than other loan types, which can save you money over time.
- No Prepayment Penalties: You can pay off your loan early without worrying about penalty fees.
- Fewer Closing Costs: In many cases, you’ll have lower closing costs with a VA loan compared to other types of loans.
VA Loan Requirements
While VA loans offer some great perks, there are a few basic requirements you’ll need to meet.
Credit Score
There’s no set minimum credit score for a VA loan, but your lender might have their own guidelines. Typically, a credit score of 620 or higher is considered a safe bet. However, some lenders might work with you even if your credit score is lower, though you may face higher fees or interest rates.
Debt-to-Income Ratio (DTI)
Your DTI ratio compares how much debt you have to your income. Lenders usually like to see a DTI of no more than 45%, but this can vary depending on your specific situation. Some lenders will also consider other factors, like your leftover income after covering all your bills, to help you qualify.
Property Restrictions for VA Loans
VA loans have a few rules about the type of property you can buy. Here’s a quick look at those restrictions:
- Primary Residence Only: The home you buy with a VA loan must be your main residence, meaning you need to live there. VA loans can’t be used for investment properties or vacation homes.
- Home Must Meet VA Standards: The home has to be in good condition, and the VA will send an appraiser to make sure it meets the necessary requirements. For example, the home should have a working heating system, a solid roof, and no major structural issues. If you’re buying a home “as is” with known issues, it might not pass the VA appraisal.
- Conventional Property Preferred: VA appraisers prefer standard single-family homes. Unique homes, like a converted barn or a property with a geodesic dome, can make it harder to find comparable sales for the appraisal, which could complicate your loan approval.
Can I Buy a Condo with a VA Loan?
Yes, you can, but the condo complex must be on the VA’s list of approved developments. If it’s not, your lender can request to have the complex added to the list. Keep in mind, this process can take a few months, and there’s no guarantee it will be approved.
Can You Have More Than One VA Loan?
Yes, you can have more than one VA loan at the same time, as long as you have enough entitlement. For example, if you’re active-duty military and get transferred, you might want to keep your existing home and buy a new one. If you haven’t used up your full VA entitlement, you can take out a second VA loan.
How Much Can You Borrow with a VA Loan?
With full entitlement, there’s no cap on how much you can borrow. However, your lender will decide how much you can qualify for based on factors like your income, credit score, and assets.
The VA Funding Fee
One cost to be aware of is the VA funding fee, which is a one-time payment you make when you close on your loan. This fee helps keep the VA loan program running and reduces the cost to taxpayers. You can roll the funding fee into your loan amount, or you can pay it upfront.
Who’s Exempt from the VA Funding Fee?
There are some exemptions from the funding fee. For example, if you have a service-related disability and receive VA compensation, you won’t have to pay it. If you were charged the fee but later get awarded disability benefits, you might be eligible for a refund.
VA Loan Eligibility
Now that you know the basics, let’s talk about eligibility. To qualify for a VA loan, you must meet certain service requirements. Here’s a breakdown of who might be eligible:
- Active Duty: You’re eligible if you’ve served at least 90 consecutive days during wartime or 181 days during peacetime.
- Veteran: Veterans who served during wartime or peacetime and meet the required length of service are also eligible.
- National Guard or Reserves: You’ll need to have at least six years of service, unless you were called up on active duty for a qualifying period.
- Surviving Spouse: The spouse of a service member who died in the line of duty or due to a service-related disability may also qualify for a VA loan.
What If You Don’t Meet the Minimum Service Requirements?
If you were discharged for reasons like hardship, reduction in force, or a medical condition, you might still qualify. It’s a good idea to check with the VA or your lender for details.
How to Apply for a VA Loan
If you meet the eligibility requirements, the first thing you’ll need to do is get a Certificate of Eligibility (COE) from the VA. This document proves to your lender that you qualify for a VA loan.
What You’ll Need to Get a COE
To apply for a COE, you’ll need some basic information, like your discharge papers (DD214) if you’re a veteran, or a statement of service from your commanding officer if you’re on active duty. If you’re a surviving spouse, you’ll need your spouse’s discharge paperwork and possibly a copy of their death certificate.
You can apply for your COE online through the VA’s eBenefits portal, or by mailing in the appropriate form.
Getting Started with Your VA Loan Application
Once you have your COE, it’s time to reach out to your lender to start the loan process. You’ll need to decide which type of VA loan works best for you, whether that’s a purchase loan, a refinance option, or something else. Your lender will help guide you through the process, from gathering documents to finalizing your loan.
Final Thoughts
VA loans are a great option for veterans and service members looking to buy a home with less financial stress. With no down payment required in many cases, no PMI, and competitive interest rates, they offer a lot of advantages. If you’re eligible, it’s worth exploring how a VA loan can help you get into your next home.
If you have questions or want to get started, call us at 541-229-5088 or fill out our contact form to send your inquiries and get expert help from our VA loan experts.
