VA Home Loans and VA Loan Rates in 2020
As an active-duty servicemember or veteran, it’s easier for you than others to achieve your homeownership goals. That’s because one of your most valuable benefits — the VA home loan — offers:
- No down payment requirement
- Zero monthly mortgage insurance
- Low interest rates
- Lenient credit guidelines
Because VA home loans are guaranteed by the federal government, VA-approved lenders (which are private companies) can lend with greater flexibility. Available to only current and former US servicemembers or Veterans (and some surviving spouses) who meet eligibility requirements, the VA home loan continues to be one of the most popular VA benefits.
In this article:
- VA home loan benefits
- VA loan rates for 2020
- Our recommended VA lenders
- VA loan requirements
- VA loan certificate of eligibility
- VA loan amounts for 2019
- VA home loan calculator
- VA loans for bad credit
One of the main benefits of the VA home loan is that it requires no down payment, which significantly reduces out-of-pocket expenses. This means you don’t have to spend years trying to save for a down payment while still paying rent. And, that can make a big difference. If home prices are rising quickly in your area, you can buy right away. Now, you’re a homeowner who’s benefiting from higher prices — not a renter who’s locked out of homeownership by them.
As importantly, VA loans do not require continuing monthly mortgage insurance. Most other loan types require you to pay a significant amount each month to a private mortgage insurance company if you make a down payment of less than 20 percent of the purchase price. A VA loan eliminates that cost, freeing up that money for other expenses. To sustain the program and guarantee loans, a one-time VA funding fee is added to the loan amount. Fees range from 0% to 3.6% — yours will depend on the loan amount and type, your service history, and whether you’ve used your VA home loan benefits before.
4 ways you can use a VA home loan
- To purchase a new or used move-in ready home
- To purchase land and finance construction of a home
- To purchase a home and finance needed repairs
- To purchase a home and finance energy-efficient improvements
Current VA loan rates have been among the lowest we’ve seen in years. That’s partly due to all mortgage rates being lower than usual. But, also because VA loan rates are generally lower than those available with other types of mortgages.
For example, Ellie Mae, a loan software company that publishes a monthly report on mortgage rates, says that VA rates typically run 0.20-0.25% below conventional ones.
Keep in mind that interest rates change daily and what you’ll qualify for will depend on factors like your credit score and interest rate type among others. In general, mortgages backed by the VA typically have lower rates than most others.
Why low rates matter
Today’s low rates impact the affordability of being a homeowner. A lower rate on your mortgage gives you two advantages. One, it means you increase your buying power — you can afford the payments on a bigger or nicer home. Two, you have lower monthly payments leaving you with more money each month.
The requirements for getting a VA home loan are similar to that of other home purchase loan types, but there is some specific documentation required to prove you meet the required service history.
You’ll need to meet one of the following service histories to be eligible for a VA loan. (If you’ve been dishonorably discharged, you won’t be eligible at all.) Additionally, eligibility may be established for those who have served in the Selected Reserves or National Guard, Public Health Service officers, cadets of the United States Military, Air Force, Coast Guard Academy, and others.
- 90 days in wartime while in active duty
- 181 days in peacetime while in active duty
- 2 years or the full time called if enlisted after 9/7/1980
- You were separated from service due to a service-connected disability
- You are an unmarried surviving spouse of a service member who was KIA/POW/MIA
Wartime & Peacetime Periods
|World War II||September 16, 1940 to July 25, 1947|
|Korean War||June 27, 1950 to January 31, 1955|
|Vietnam War||August 5, 1964 to May 7, 1975|
|Persian Gulf War||August 2, 1990 to present|
|Peacetime||Any timeframe between wartime periods above.|
There’s only way to be 100 percent sure that you’re eligible to purchase a home with a VA loan. And that’s to receive a Certificate of Eligibility (COE) from the VA. There are two ways to obtain your COE:
- Ask your lender to obtain your COE through the VA’s eligibility website. Typically, a loan officer can obtain your COE in minutes, often without a DD-214 (if separated from service) and Form 26-1880 (request for COE), although sometimes these forms are needed. Calling a VA-approved lender is the quickest way to get your COE.
- Order your COE directly through the VA’s eBenefits website, though this process may take longer.
If you’re a spouse of a Veteran who was killed in action and you haven’t subsequently remarried, you may be eligible for VA financing. You will need to complete Form 26-1817.
Eligible property types
VA loans can only be used for a home that you plan to keep as your primary residence. They cannot be used to obtain a rental home, investment property, or second home. They can, however, be used to purchase a two- to four-unit property if you live in one unit but rent out the rest. Homes must also meet Minimum Property Requirements (MPRs), which are standards for the condition of the home. Read more on minimum property requirements.
The VA home loan allows you to buy many types of properties, including:
- Single family homes (non-connected)
- Two- to four-unit homes (if you live in one unit and rent out the others)
- Attached townhouses (VA-approved projects only)
- Condominiums (VA-approved projects only)
- Mobile/manufactured homes (provided the home comes with land, is permanently affixed, and the structure is at least 20 feet wide and 700 square feet if a double-wide)
- Fixer-uppers or land (with the intent of constructing or repairing the home)
- Adapted homes for those with service-connected disabilities (special grants are available)
As of January 1, 2020, there are no official limits to how much you can borrow with a VA loan.
Of course, the amount you can borrow will be determined by your ability to afford the monthly payment and other homeownership expenses.
Read more: New Law Eliminates VA Loan Limits
The trouble with mortgage rates is they go up and down all the time. You can’t be absolutely sure what your payments will be until you lock in your rate — that happens once you’ve been approved and decide to proceed.
But, that doesn’t mean you need to go into this blind. You can get a decent estimate of your main mortgage expenses and your likely buying power using our free VA loan calculator. It provides a breakdown of your likely mortgage payment, property taxes, and homeowner’s insurance. If you’re buying a home with a homeowner’s association (HOA), then you can add in its approximate dues too.
This online tool can help you model different scenarios until you find one that suits you. So, try it with different numbers and assumptions — it’s anonymous, so you don’t have to hand over any personal data to use it.
It’s easier to get a VA loan with iffy credit than to be approved for most other types of mortgages. But, that doesn’t mean everyone will qualify.
The VA itself doesn’t set a minimum credit score. But you’re not borrowing from the VA. It’s only guaranteeing your loan. You’re borrowing from a private lender and each of those can set any rules and limits it wants.
Lenders know they’re not doing you (or themselves) any favors if they give you a loan you can’t comfortably afford or easily manage. So they’ll want to reassure themselves on both points.
Most lenders want you to have a score of 620 or better to approve you for a VA loan. However, if you’re determined in your search, you may find one that’s more sympathetic to your circumstances and will give you a loan with a lower score.
Credit scores are a three-digit numerical representation — based solely on your credit history — of how well you’ve managed your finances in the past. FICO scores are the most commonly used, which range from 300-850 (the higher the better).
Your credit score doesn’t just affect your ability to qualify for a loan — it affects the interest rate too. One thing’s for sure: the higher your score, the lower the mortgage rate you’re likely to be offered. If you have time, it’s worth working to get your score up.
Read more: VA Loans and Credit Scores.
Other qualifying factors
There’s another big factor that will determine whether you’re approved for a mortgage and how good a deal you’ll get. That’s your debt-to-income ratio — or DTI. If your credit score is an indicator of how responsible a borrower you’ve been in the past, your DTI suggests how comfortably you’ll be able to afford your new mortgage in the future.
Calculating your debt-to-income (DTI) ratio
Your lender will calculate your DTI in two parts. First, it’ll look at all your existing debt payments each month, including all loan installments (auto, student, personal), minimum credit card payments, and recurring commitments such as alimony or child support. It won’t look at consumables, so don’t include what you spend on food, gas, utility bills, and so on. And, ignore your rent or existing mortgage payments because they’ll end when your new mortgage is in place.
The lender will then add up the new financial commitments you’ll be taking on: mortgage payments, property taxes, homeowner’s insurance, and homeowner’s association dues if applicable. Finally, it’ll add together both those sums to come up with your total debt burden and then divide that by your monthly take-home pay. For example, if your monthly outgoings are $1,500 and your income is $4,500, then your DTI is 33%.
If your DTI is 36% or less, most lenders will love you. If it’s 41%, you’re still likely to get approved by many lenders for a VA loan. But, that will get much harder as your DTI approaches 50% — and may be close to impossible above that. Find out more on How Does DTI Affect Loan Amounts?
More information about VA and non-VA loan types
There are multiple types of VA and non-VA loans available for your home purchase or refinance needs. In addition to the VA home purchase loan, there are two VA refinance options:
- VA Streamline Refinance. Otherwise known as a VA IRRRL, this loan is the fastest refinance option for current VA mortgage holders. If you are interested in lowering your interest rate and monthly payment quickly, this is your best bet.
- VA Cash-out Refinance. If you have earned equity in your home and would like to take cash out against your home’s value, the VA cash-out refinance is a great option. This loan can also be used to pay off your existing conventional, FHA, or other type of mortgage.
If you don’t qualify for a VA loan, here are some options that may better suit your buying or refinancing needs:
- FHA Home Loan. Intended for those looking to purchase a home with as little money down as possible. The FHA loan requires only a 3.5% down payment.
- Conventional Purchase Loan. Best for home buyers with money saved for a down payment and great credit.
- FHA Refinance. One of the most affordable home loan refinance options, but works exclusively for those who currently have an FHA home loan.
- Conventional Refinance. If you don’t have an FHA home loan, there are several options available to help you save by lowering your interest rate.
I’m ready to take advantage of my VA home loan benefits
As an eligible active-duty servicemember or Veteran, a VA home loan gives you an advantage over other home buyers — you don’t need a down payment.
If you’re ready to move forward with your home purchasing goals, then call (866) 240-3742 to speak with a licensed lender who can answer your questions and find you low rates.