Common VA Loan Questions Answered
Posted on: February 20, 2020
Plenty of eligible home buyers don’t know what the VA loan is, which is unfortunate because this is one of the best home loan products available.
A lender who specializes in VA loan will be able to help you evaluate how a VA loan fits your specific situation, but here we’ve tackled the most common VA loan questions and answers.
Who is eligible for VA loans?
Most veterans and active duty service members are eligible. However, all veterans, active duty service members and National Guard members must meet certain requirements.
To be eligible, you must have met at least one of the following:
- Served 90 consecutive days during wartime
- Served 181 days during peacetime
- Have more than six years of service with the National Guard or Reserves
Also, VA loans are available to the surviving spouses of military members who died in the line of duty.
How is a VA loan different from conventional or FHA loans?
For one, the VA loan is guaranteed by the VA. This is similar to FHA loans which are backed by another government organization. Conventional loans aren’t backed by anyone.
Another difference (and it’s a big one) is VA mortgage rates tend to be much lower than both FHA and conventional rates. In October of 2019, VA loans closed with an average rate of 3.68%, as compared to 3.94% and 3.98% for FHA and conventional, respectively.
How much can I borrow with a VA loan?
Previously, the VA loan program required borrowers to make a down payment on any loan that exceeded conventional loan limits.
But not anymore.
As of January 1, 2020, VA-eligible borrowers can get any size loan with no down payment. There are no official limits.
But remember, you’ll still have to qualify for the mortgage.
If you’re looking for an extra-large VA loan with no down payment, make sure you have a solid income and excellent credit score.
What credit score do I need to qualify?
Technically, there is no minimum credit score to qualify for VA loans. However, most lenders will want to see a credit score of at least 620 before approving the mortgage. In some cases, VA home buyers can get approved with scores below 620.
Do I need to make a downpayment?
One of the biggest benefits of the VA loan is no downpayment is required. The VA guarantees the mortgage, so you can secure 100% financing. It’s also possible to finance some of the closing costs or get the upfront costs covered by the seller.
Not only is it possible for VA home buyers to avoid a down payment, but it’s a popular option as well. In October 2019, the average VA loan down payment on a home was just two percent. Down payments aren’t required, but they can save you money on your monthly payments.
Do I need to pay mortgage insurance?
Another benefit of having the VA guarantee the mortgage is you don’t have to pay mortgage insurance. Private mortgage insurance (PMI) or mortgage insurance premiums (MIP) are required for smaller down payments on conventional and FHA loans. But no matter how much you put down on a VA loan, you won’t have additional insurance payments.
How long is the VA loan process?
There’s no set-in-stone time limit for how long the VA loan process takes, but it does take slightly longer than other programs on average.
In January 2020, the average VA loan closed in 51 days, according to the Janaury 2020 Ellie Mae Origination Report. By comparison, the average conventional loan closed in 48 days, and FHA in 50 days. So, for the most part, a VA loan will take slightly longer than other loan types, but not by much.
Can I only use a VA loan once?
If you’re eligible for the VA loan, then you’re eligible for your entire life. Plenty of home buyers end up using the VA loan more than once, mostly because it’s arguably the best loan program out there.
You can be eligible to use your VA entitlement benefit again for a new loan if:
- You’ve paid off your previous VA loan
- Your VA loan has been assumed by another veteran
- You haven’t used all your entitlement
How long does getting pre-qualified take?
Pre-qualifying is quick, and it can be started online.
If you’re interested in buying a home at any point in the future, then getting pre-qualified is a good idea. You can get pre-qualified even if you don’t have a house in mind, or if you haven’t even started looking. A pre-qualification will give you a better idea of how much home you can afford, so you should do this before you start shopping around.
How do I get proof of eligibility?
A certificate of eligibility(DOE) demonstrates to your lender that you’re entitled to VA home loan benefits.
It’s straightforward to obtain via the VA’s website. Veterans will need to upload their DD214 form. If you’re still serving, you’ll need a statement of your service signed by your “adjutant, personnel office, or commander of the unit of higher headquarters.”
However, it’s easier to get your lender to do this for you. If you provide your DD214 or statement of service, then the lender can get your COE directly from the VA on your behalf.
What kind of home can I buy with a VA loan?
Like other loan programs, VA loans have rules about what you can and cannot buy. VA loans are intended to provide veterans and service members with a primary residence. So they can be used to purchase a single-family house, a townhouse or an apartment. Beyond this, the rules get more complicated.
VA loans are intended to provide veterans and service members with a primary residence, so you cannot use VA loan to purchase a vacation home or second house or investment property. You can purchase an apartment building with up to four units, but one of the units must be your primary residence.
Mobile homes can be financed with a VA loan, but qualifying can be tricky. And you cannot use a VA loan to purchase property in a foreign country.
Can I rent out a home I purchased with a VA loan?
As noted above, VA loans are meant to get veterans and service members into homes so they can’t be used to purchase rental properties.
However, if you’re moving, you don’t necessarily need to sell your existing home if you have a VA loan on it. You can keep your home and rent it out, even with an existing VA loan on it.
There are two ways to do this: 1) Depending on how much equity you’ve accrued in your existing home, you may be able to refinance using a conventional loan and get a one-time VA entitlement restoration. Your VA benefit is restored in full and you can get another VA loan for your next home. Or, 2) If your current home was inexpensive, you may have remaining entitlement left over. In that case, you can apply any remaining entitlement towards a new home.
What is a VA appraisal?
A VA appraisal evaluates whether the home is worth what you’re willing to pay for it. Your lender will order the appraisal, but the appraiser will be an independent, licensed appraiser who is approved by the VA.
The appraiser will asses the condition of the property, making sure it has:
- Functional roof, heat, plumbing, and electrical systems
- No pest issues
- No lead-based paint
- No water intrusion
- No health or safety issues
What’s a VA funding fee?
The VA funding fee is an upfront, one-time payment determined by your loan amount and your service history, among other factors. The funding fee typically ranges from 0.50% to 3.60% pf the loan amount. This is small compared to the home loan cost savings veterans enjoy, but it allows the VA loan program to be self-sustaining, rather than using taxpayer dollars or funds from other VA benefit programs.
Can I finance my VA funding fee?
The VA funding fee can be financed into your loan to reduce out-of-pocket expenses, but remember this will add to your overall loan balance.
Is a VA loan always the best option for service members and veterans?
Not necessarily. There is no one-size-fits-all loan and the best choice for you will depend on the specifics of your situation. For example, if you’re making a down payment of 20% or more, a conventional loan might end up being less expensive.
Talk with a lender who specializes in VA loan products to evaluate your options and find the best fit for you.