Va Loan Basics: Everything You Need to Know

Welcome to our comprehensive guide on VA loans, a government-backed mortgage program specifically designed to help military service members, veterans, and eligible surviving spouses buy or refinance their homes. If you’re a member of the military community, you may qualify for a VA loan, which can offer many benefits and affordability advantages over conventional loans. In this article, we’ll explore everything you need to know about VA loans, from the basics to the nitty-gritty details. Let’s dive in!

What is a VA Loan?

A VA loan is a mortgage loan program that’s guaranteed by the U.S. Department of Veterans Affairs (VA). It’s available to eligible service members, veterans, and surviving spouses who meet certain criteria. VA loans are designed to help individuals purchase or refinance their primary residence with more favorable terms and interest rates than conventional loans. One of the key benefits of VA loans is that they don’t require a down payment, which can be a significant cost savings.

The History of VA Loans

The VA loan program was established by the Servicemen’s Readjustment Act of 1944, also known as the GI Bill of Rights. The GI Bill aimed to provide benefits and support to veterans returning home from World War II, including access to low-cost home loans. Since then, VA loans have become a critical resource for military families to achieve homeownership.

How Do VA Loans Work?

To obtain a VA loan, you’ll need to apply through a VA-approved lender. The lender will review your credit and financial history, as well as your Certificate of Eligibility (COE), to determine if you meet the eligibility requirements. If you’re approved, the VA will guarantee a portion of the loan, which means the lender will be protected in case you default on the loan. This guarantee allows lenders to offer more favorable terms and interest rates to borrowers.

Who is Eligible for a VA Loan?

Not everyone is eligible for a VA loan. To qualify, you must be one of the following:

• A veteran who served on active duty and was discharged under conditions other than dishonorable
• An active-duty service member who has served at least 90 consecutive days
• A National Guard or Reserve member who has served at least six years
• An eligible surviving spouse of a service member who died in the line of duty or as a result of a service-related injury

You’ll also need to meet certain credit and income requirements and have a valid COE. The COE proves to the lender that you meet the VA’s eligibility requirements, including your length and type of service.

What are the Benefits of a VA Loan?

VA loans offer a range of benefits that can make buying or refinancing a home more affordable and accessible, including:

• No down payment required
• No private mortgage insurance (PMI) required
• Lower interest rates than conventional loans
• Flexible credit requirements
• Closing cost restrictions
• Ability to finance energy-efficient improvements
• Assistance to borrowers facing financial hardship

What Types of Properties Can You Buy with a VA Loan?

VA loans can be used to purchase or refinance a variety of different types of properties, including:

• Single-family homes
• Condominiums
• Townhouses
• Manufactured homes
• Multifamily properties (up to four units)

How Much Can You Borrow with a VA Loan?

The amount you can borrow with a VA loan will depend on a few factors, including your credit score, debt-to-income ratio, and the value of the property you’re purchasing. There are also limits to how much you can borrow with a VA loan, which are set by the VA and vary depending on where you live. In general, the VA loan limit for 2021 is $548,250, although it can be higher in certain high-cost areas.

What are the Requirements for Closing Costs?

Like any other mortgage loan, VA loans come with closing costs, which can include fees for appraisals, inspections, and title searches, among other things. However, the VA limits the amount that lenders can charge borrowers for closing costs, which can help make the loan more affordable. In addition, some borrowers may be able to negotiate with the seller to cover some or all of the closing costs. It’s important to discuss closing costs with your lender and budget accordingly.

What Happens if You Default on a VA Loan?

If you default on a VA loan, the VA will work with the lender to help you avoid foreclosure. The VA may offer assistance to homeowners who are facing financial hardship, such as arranging a repayment plan or loan modification. However, if foreclosure is unavoidable, the VA may be able to provide additional support to help you find new housing and move on.

FAQs

What is a VA loan entitlement?

A VA loan entitlement is the amount the VA guarantees the lender in the event of a borrower’s default. The basic entitlement for VA loans is $36,000, which can allow you to borrow up to $144,000 with no down payment. However, the VA also offers a bonus entitlement, which can allow you to borrow more with no down payment or to borrow with a smaller down payment.

Can you have multiple VA loans?

Yes, it’s possible to have multiple VA loans at the same time, depending on your circumstances. For example, if you’ve paid off your first VA loan and sold the property, you can use your entitlement to purchase a new home. You can also use your entitlement to purchase a second home while still paying off your first VA loan or to refinance an existing VA loan.

Can you use a VA loan to purchase an investment property?

No, VA loans are only available for primary residences, not investment properties or vacation homes.

Can you use a VA loan to purchase a fixer-upper?

Yes, you can use a VA loan to purchase a fixer-upper if the property meets certain requirements. You’ll need to use a VA-approved lender who can provide a VA renovation loan, which will allow you to finance the cost of repairs and improvements into the overall loan. However, the repairs must be completed within a certain timeframe, and there are limits to the amount you can borrow for renovations.

Can you use a VA loan to purchase land?

No, VA loans are not available for the purchase of land alone. However, if the land is being purchased with the intent to build a primary residence on it, you may be able to use a VA loan to finance the land purchase and construction costs.

What credit score is needed for a VA loan?

There is no minimum credit score requirement for VA loans, but most lenders prefer borrowers to have a credit score of at least 620. However, each lender sets its own credit standards, so it’s important to shop around and find a lender that’s a good fit for your financial situation.

Can you get a VA loan with bad credit?

Yes, it’s possible to get a VA loan with bad credit, but it may be more difficult to find a lender who will approve your application. Some lenders may require a higher down payment or more stringent credit requirements for borrowers with lower credit scores.

Do you have to pay taxes on a VA loan?

No, you don’t have to pay federal taxes on a VA loan. However, you may have to pay state and local taxes on the property, depending on where you live.

Can you refinance a VA loan?

Yes, you can refinance a VA loan through a VA-approved lender. The VA offers two main types of refinancing options: the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out Refinance Loan. Both options can help you save money on your mortgage payments or access your home’s equity.

Can you get a VA loan if you’ve had a bankruptcy or foreclosure?

Yes, it’s possible to get a VA loan if you’ve had a bankruptcy or foreclosure in the past. The VA doesn’t have a specific waiting period for borrowers who have filed for bankruptcy or gone through foreclosure, but most lenders will require you to wait at least two years before applying for a VA loan.

Can you get a VA loan with a low income?

Yes, you can still qualify for a VA loan with a low income, but you’ll need to meet certain debt-to-income ratio requirements. Your debt-to-income ratio is the amount of debt you have compared to your income, and most lenders prefer borrowers to have a ratio of 41% or less.

Do you need a home inspection for a VA loan?

Yes, a home inspection is required for VA loans to ensure that the property meets certain safety and livability standards. The inspection is usually conducted by a VA-approved appraiser, who will also determine the value of the property.

Do you need a real estate agent to get a VA loan?

No, you don’t need a real estate agent to get a VA loan, but it can be helpful to have one on your side to assist with the home search and negotiation process. Real estate agents with experience working with VA buyers can also offer guidance and support throughout the loan process.

How long does it take to get a VA loan?

The time it takes to get a VA loan can vary depending on the lender and the complexity of your application. In general, the process can take anywhere from 30 to 45 days, but it may take longer if there are any issues with your credit or financial history.

Can you use a VA loan for a second mortgage?

No, VA loans cannot be used for second mortgages or home equity loans. However, some borrowers may be able to refinance their existing VA loan with a Cash-Out Refinance Loan to access their home’s equity.

Conclusion

As you can see, VA loans are a valuable resource for military service members, veterans, and eligible surviving spouses who want to achieve the dream of homeownership. From the flexible eligibility requirements to the zero-down payment option, VA loans offer a variety of benefits that can help make homeownership more affordable and accessible. If you’re considering a VA loan, we encourage you to explore your options and reach out to a VA-approved lender for guidance and support.

Thank you for reading our guide on VA loan basics! We hope you found it helpful and informative. If you have any questions or would like to learn more about VA loans, don’t hesitate to contact us. We’re here to help!

Disclaimer

The information provided in this article is for general informational purposes only and should not be construed as legal or financial advice. We make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information contained in this article. You should consult with a licensed professional before making any financial or legal decisions based on the information in this article.