VA Loan Requirements For Eligible Military Borrowers And Their Families
The U.S. Department of Veterans Affairs' home loan guaranty program is arguably one of the best loan programs for borrowers in the United States.
That's because a VA loan offers eligible borrowers the unique opportunity to purchase a home or refinance an existing loan with no downpayment or mortgage insurance premium and other very favorable rates and terms.
Here's an overview of what home buyers and homeowners need to know about today's VA loans. Or, just skip to the mortgage rates.
About The VA Mortgage Program
A VA loan is similar to other home loans except that it includes an important sweetener for lenders.
The sweetener is that the federal government guarantees that a portion of the loan will be repaid even if the borrower doesn't make the payments for whatever reason. This guarantee encourages and enables lenders to offer VA loans with attractive rates and terms.
One common misconception is that the VA guarantee means eligible borrowers are guaranteed or promised that they will receive a home loan. That's not true. Rather, borrowers must still meet loan qualification guidelines. For those who do, the VA loan is well worth considering.
Who Offers VA Loans?
The VA doesn't directly originate or fund VA loans. Rather, these loans are offered by major banks, savings-and-loans, credit unions and other mortgage companies of all sizes that are approved to offer VA-guaranteed loans.
The lenders provide the funding while the VA sets the policies. The VA also offers borrowers support and advice to help them obtain a loan and intervenes with softer alternatives to foreclosure for borrowers who later aren't able to sustain their home ownership.
What Are The Other Benefits Of A VA loan?
VA loans typically don't require a down payment or mortgage insurance, which means these loans can be obtained with little cash out of pocket.
Most VA loans are assumable, which means the loan can later be transferred to another eligible borrower if certain requirements are met. VA loans have no prepayment penalty.
VA loans can offer a lower interest rate and closing costs than conventional loans, depending on the borrower's situation and circumstances.
What Types Of Loans Does The VA Guarantee?
The VA guarantees purchase-money loans, refinance loans, and loans that can be used to build a home or make repairs or improvements to a home.
Purchase-money loans can be used to buy an existing house or condominium, a house or condominium that's being newly built, a manufactured home or a lot on which a manufactured home will be placed. A refinance loan can used to refinance an existing VA or non-VA loan for the same types of properties and uses as a purchase-money loan.
Who Is Eligible To Obtain A VA Loan?
Eligible borrowers for the VA loan program may include:
- Servicepersons on active duty
- Members of the National Guard
- Surviving spouses of deceased veterans
- Cadets at the U.S. Military, Air Force or Coast Guard Academy
- Midshipmen at the U.S. Naval Academy
- Officers of the National Oceanic & Atmospheric Administration
How Much Does A VA Loan Cost?
With a VA mortgage, borrowers should expect to pay some customary closing costs and fees. However, the VA also limits certain closing costs that lenders can charge for a VA loan.
Borrowers also pay a VA funding fee. This fee is a percentage of the loan amount and depends on the borrower's type of service, the purpose and type of loan, the size of the borrower's downpayment as a percentage of the purchase price or the home's value and other factors.
The fee can be included in the loan amount, so it need not be paid in cash at closing.
The funding fee normally is waived for veterans who receive VA disability compensation and unmarried surviving spouses of veterans who died in service or as a result of a service-connected disability.
VA mortgage rates are set by lenders, not the VA.
What Else Is Required To Get A VA Loan?
VA borrowers must meet a variety of other requirements, which might include a minimum length of service, acceptable credit history or credit score, sufficient income and a valid Certificate of Eligibility (COE), which certifies the borrower's eligibility to the lender.
Borrowers must also certify that they intend to occupy the home as their principal residence, except in the case of a rate-reduction refinance, which requires only a statement of prior occupancy.