Greetings! If you’re a veteran or an active-duty service member, you may be wondering what your home loan options are. Fortunately, the VA offers multiple choices to help make your dream of homeownership a reality. In this article, we’ll go over all the VA home loan options, including their benefits and eligibility requirements. Let’s dive in!
Introduction
Before we begin discussing the VA home loan options, it’s important to understand what a VA home loan is and how it works. The VA home loan program was created in 1944 to help veterans and service members purchase homes without having to put down a large down payment or have great credit. Since then, the program has helped millions of veterans become homeowners.
VA home loans are guaranteed by the Department of Veterans Affairs, which means lenders are more likely to approve your loan application. Additionally, VA home loans typically have lower interest rates than conventional loans, which can help you save money in the long run.
Let’s take a closer look at the different VA home loan options.
VA Loan Types
Purchase Loans
The most common type of VA home loan is the purchase loan, which helps veterans and service members buy a home. To be eligible for a VA purchase loan, you must have a good credit score, sufficient income, and a valid Certificate of Eligibility (COE).
One of the biggest advantages of a VA purchase loan is that you can buy a home with no down payment, as long as the purchase price doesn’t exceed the appraised value of the home. You’ll also avoid paying private mortgage insurance (PMI), which is typically required for conventional loans with less than 20% down payment.
Another benefit of a VA purchase loan is that you can negotiate with the seller to pay for some or all of your closing costs. This can help you save money and make homeownership more affordable.
Interest Rate Reduction Refinance Loan (IRRRL)
If you already have a VA loan and want to refinance to get a lower interest rate, the IRRRL may be a good option for you. The IRRRL, also known as the VA streamline refinance, allows you to refinance your current VA loan with little documentation and no appraisal.
The IRRRL is designed to help veterans save money on their monthly mortgage payments. The interest rate on the new loan must be lower than the interest rate on the old loan, and the new loan must have a lower monthly payment. You may also be able to roll the closing costs into the new loan, so you won’t have to pay them upfront.
Cash-Out Refinance Loan
If you have equity in your home and want to cash out some of that equity to pay off debt or make home improvements, the cash-out refinance loan may be a good option for you. The cash-out refinance loan allows you to refinance your current VA loan and take out cash up to the appraised value of your home.
The cash-out refinance loan has a higher interest rate than the IRRRL, but it may be a good option if you need cash for a large expense. Keep in mind that taking cash out of your home’s equity will increase your monthly mortgage payments.
Native American Direct Loan (NADL)
The NADL is a program that helps Native American veterans and service members purchase, build, or improve homes on Federal Trust Land. To be eligible for the NADL, you must be a veteran or service member who is a member of a Native American tribe, buy or build a home on Federal Trust Land, and have a valid COE.
The NADL offers a low fixed interest rate and negotiable interest rates. It also doesn’t require a down payment or PMI, making it an affordable option for Native American veterans and service members.
Adapted Housing Grants
The VA also offers Adapted Housing Grants for veterans and service members with disabilities. The grants can be used to build or remodel a home to make it more accessible for someone with a disability.
There are two types of Adapted Housing Grants: the Specially Adapted Housing (SAH) Grant and the Special Home Adaptation (SHA) Grant. The SAH Grant can provide up to $100,896 to build or remodel a home to make it more accessible, while the SHA Grant can provide up to $20,215 for smaller changes like installing handrails or widening doorways.
VA Loan Eligibility Requirements
Certificate of Eligibility (COE)
The first step to getting a VA home loan is to obtain a COE. The COE verifies that you meet the minimum service requirements for VA benefits, which include being an active-duty service member, a veteran, or a surviving spouse of a service member who died in the line of duty.
You can obtain a COE by submitting an application online, through your lender, or by mail. Your lender can also help you obtain a COE.
Minimum Service Requirements
To be eligible for a VA home loan, you must meet the minimum service requirements, which vary depending on when and how you served. Generally, you must have served at least 90 consecutive days of active duty during wartime, 181 days of active duty during peacetime, or 6 years in the National Guard or Reserves.
Credit Score Requirements
While there is no minimum credit score requirement for a VA home loan, most lenders prefer a credit score of at least 620. However, some lenders may be willing to work with borrowers with lower credit scores.
Debt-to-Income Ratio (DTI)
The VA doesn’t have a maximum DTI ratio, but most lenders prefer a DTI ratio of 41% or lower. DTI is calculated by dividing your monthly debt payments by your monthly income.
Property Requirements
The property you’re purchasing or refinancing must meet the VA’s minimum property requirements (MPRs). The MPRs are designed to ensure the safety and health of the occupants and to protect the value of the property.
The MPRs include requirements for water and sewage systems, heating and cooling systems, and structural integrity. An appraisal will be done to ensure the property meets the MPRs.
Funding Fee
The VA charges a funding fee on all VA home loans. The funding fee helps offset the cost of the VA home loan program to taxpayers. The amount of the funding fee depends on the type of loan, the down payment amount (if any), and whether it’s your first or subsequent use of the VA home loan benefit.
VA Loan Table
Loan Type |
Minimum Service Requirements |
Down Payment |
PMI Required |
Interest Rate |
Funding Fee |
|---|---|---|---|---|---|
Purchase |
90 days of active duty during wartime, 181 days of active duty during peacetime, or 6 years in the National Guard or Reserves |
0% |
No |
Lower than conventional loans |
Between 0.5% and 3.6% of loan amount, depending on down payment and first or subsequent use |
IRRRL |
Must have an existing VA loan |
N/A |
No |
Lower than existing loan |
0.5% of loan amount |
Cash-Out Refinance |
Must have an existing VA loan |
No |
No |
Higher than IRRRL |
Between 0.5% and 3.6% of loan amount, depending on first or subsequent use |
NADL |
90 days of active duty during wartime, 181 days of active duty during peacetime, or 6 years in the National Guard or Reserves + Native American tribal affiliation |
0% |
No |
Lower than conventional loans |
Between 0.5% and 3.6% of loan amount, depending on first or subsequent use |
VA Home Loan FAQs
1. Can I use a VA home loan to buy a second home?
No, you can only use a VA home loan to purchase your primary residence.
2. Can I use a VA home loan to buy a vacation home?
No, you can only use a VA home loan to purchase your primary residence.
3. Can I use a VA home loan to buy a rental property?
No, you can only use a VA home loan to purchase your primary residence.
4. What is the interest rate on a VA home loan?
The interest rate on a VA home loan varies depending on the lender, the type of loan, and your credit score.
5. How do I obtain a Certificate of Eligibility (COE)?
You can obtain a COE by submitting an application online, through your lender, or by mail. Your lender can also help you obtain a COE.
6. What is the funding fee on a VA home loan?
The funding fee on a VA home loan depends on the type of loan, the down payment amount (if any), and whether it’s your first or subsequent use of the VA home loan benefit.
7. How much can I borrow with a VA home loan?
The maximum loan amount for a VA home loan varies depending on the county you’re buying the home in and whether it’s your first or subsequent use of the VA home loan benefit.
8. Do I need a down payment for a VA home loan?
No, you can buy a home with no down payment as long as the purchase price doesn’t exceed the appraised value of the home.
9. Do I need to pay private mortgage insurance (PMI) with a VA home loan?
No, you won’t have to pay PMI with a VA home loan.
10. Can I negotiate with the seller to pay for closing costs?
Yes, you can negotiate with the seller to pay for some or all of your closing costs.
11. How long does it take to get a VA home loan?
The timeline for getting a VA home loan varies depending on the lender and the complexity of the loan application. Generally, it takes between 30 and 45 days.
12. Can I get a VA home loan if I have bad credit?
While there is no minimum credit score requirement for a VA home loan, most lenders prefer a credit score of at least 620. However, some lenders may be willing to work with borrowers with lower credit scores.
13. What are the minimum property requirements (MPRs) for a VA home loan?
The MPRs are designed to ensure the safety and health of the occupants and to protect the value of the property. They include requirements for water and sewage systems, heating and cooling systems, and structural integrity.
Conclusion
Now that you know all the VA home loan options, you can make an informed decision about which one is right for you. Whether you’re purchasing a home or refinancing an existing loan, the VA offers multiple choices to help make homeownership more affordable and accessible.
If you’re ready to take the next step in your homebuying journey, speak with a VA-approved lender who can guide you through the application process. Remember, the VA home loan program is designed to help you achieve your dream of homeownership – don’t let it go to waste!
Semper fidelis!🇺🇸
Closing Disclaimer
The information in this article is for educational purposes only and should not be construed as legal, financial, or tax advice. The VA home loan program is subject to change at any time, so always consult with a qualified professional before making any decisions.