VA Loan Terms | NextAdvisor with TIME
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If you are a veteran with a stable job, now is a great time to enter the housing market.
Interest rates are low due to the federal government’s efforts to stimulate the pandemic economy, and service members are taking advantage of the funding boom. In 2020, mortgages guaranteed by the US Department of Veterans Affairs (VA) reached a record number of originations in the past six years, and Refinancing loans with interest rate reduction (IRRRL) has grown six times a year, leading to a doubling of the total number of original VA loans, according to data from the VA.
Affordable housing finance is a major military advantage. VA home loans are an original “cornerstone” of the 1944 GI Bill, according to Chris Birk, Vice President of Mortgage Analysis and Director of Education for United Veterans Housing Loans. And over seventy years later, “it’s incredibly impactful, especially for young servicemen and veterans. [They] were able to plant roots and jump into homes before their civilian counterparts because no down payment is required.
Types of VA home loans
The three most popular VA home loans are purchase loans (mortgages), IRRRLs, and cash refinances. Here’s what you need to know.
VA Purchase Loans are government-funded mortgages that provide a homeownership route for veterans and active-duty military personnel. The terms and conditions tend to be more lenient than conventional loans, and you don’t have to make a down payment. You have to go through a mortgage lender to get a VA purchase loan – not through the VA itself – and the house must be a primary residence. You will not have to pay PMI, but you will have to pay the VA financing fees.
Also known as Will streamline refinancing, an IRRRL is a home refinancing option for homeowners who already have a VA mortgage. An IRRRL is ideal for people who want to refinance at a lower interest rate or lower monthly payment. In today’s low-rate environment, it may not offer the most competitive rates for people with good or excellent credit, but an IRRRL could benefit a low-income person due to the requirements. simplified documentation. As with a purchase loan, you will need to go through a mortgage lender, not the VA, and you will have to pay the finance charge of 0.5% of the VA.
the Refinancing of the VA cash-out replaces your existing mortgage with a higher mortgage, allowing you to withdraw the difference in cash. The amount you can withdraw depends on the equity in your home. Unlike an IRRRL, you can have a conventional mortgage while still being eligible for VA cash-out refinancing. But the interest rate may be higher than an IRRRL, as lenders tend to view this investment as riskier. You will also need to pay the VA finance charge (2.3% for the first use, then 3.6% each time thereafter).
VA loan eligibility
The simple answer: you have to be a veteran or an active military to get a VA loan. But there are additional requirements that you must meet.
To be eligible for a VA loan (a purchase loan, IRRRL, or cash refinance), you must be one of the following:
- Active duty member
- Current, former or demobilized member of the National Guard or the Reserve
- Surviving spouse of a veteran who died on active duty or has a service-related disability
There are additional service requirements that you will need to meet and documentation to provide. The most important document will be your Certificate of Eligibility (COE), which will show you what benefits you are entitled to. You can get it online from AV, your lender, or by completing an application by mail.
VA loans are not a one-time benefit. You can apply more than once – as long as you buy a primary residence and pay off the VA loan each time.
VA loan qualifications
The VA does not need a specific credit score to obtain a purchase loan, IRRRL, or cash refinance. This is one of the benefits of VA loans, according to Birk. “The ability to buy without a down payment and without the need for perfect credit is a huge differentiator for military families.”
However, you will have to show your creditworthiness to lenders even if your credit score is not excellent or good. “Some lenders allow a credit score of 580 or less if, in the past two years, you haven’t had any negative points on your report,” says Shanequa Jones, a veteran and real estate agent from Houston Elite Real Estate NB.
The debt-to-income ratio, or DTI, is a measure of how much you owe versus what you earn. Lenders view the DTI as an approximation of how likely you are to pay off a mortgage. Jones says that VA loan lenders tend to prefer borrowers with FDI below 45% or 40%, but “some [accept higher DTIs] with compensated factors, such as more cash reserves or higher credit scores. “
Income and employment
There is no minimum income required by the VA. But Jones says employment is definitely a factor in your application: “[Lenders] want two years of consistent work history. You may need to provide pay stubs or a letter of offer as proof of employment to your lender, and some lenders may even count your education as part of your employment history.
VA Loan Upfront Payment Requirements
The VA does not require a minimum down payment, so you can get a home loan with 0% down payment – a rarity in the mortgage industry that veterans can take full advantage of. Birk says eight in 10 veterans who buy an AV-backed home without making a down payment.
VA Loan Property Requirements
The VA requires that the home you buy with a VA guaranteed loan be a primary residence. This means that you cannot use the loan to buy a vacation home or investment property. However, “home” doesn’t just mean single-family homes. It can also mean condo units, multi-unit homes (up to four units), and manufactured homes.
The home will need to undergo an appraisal and inspection by a licensed VA contractor before closing. Jones says VA ratings tend to be strict and similar to FHA ratings. These aim to assess the safety and stability of the building.
How to apply for a VA loan
Obtaining a loan secured by the VA is similar to obtaining a conventional loan, with only a few additional steps.
1. Obtain your certificate of eligibility
Your COE lets you know what VA benefits you are entitled to, based on your military status and years of service. You can have it online on the VA website, have the VA mail it to you, or ask your lender to get it for you.
Not all offers will be the same. We recommend that you review the terms and rates of at least three lenders, either directly through the lender or through a mortgage broker. This will give you an idea of what the market is offering based on your financial profile. Getting pre-approved – rather than going through the entire application process – is even better because it allows you to see that you are potentially qualified, without your credit score being affected by too many applications submitted. With a low inventory across the country, having a pre-approval letter on hand can speed up the home buying process.
3. Apply for the loan
Once you have found the right home, you will go through the process of applying and subscribing for the VA loan. The lender will assess your income, assets, debts, credit, and other aspects of your financial health to determine if you are a trustworthy borrower. In this process, you will need to provide documentation and the home will go through a VA approved appraisal to ensure the property requirements are met.
4. Pay the closing costs and the financing costs of the VA
If you pass the lender’s qualifications, you will enter the closing process. This will require a lot of signatures on the paperwork and a lot of fees to pay. One of these fees will be the VA financing fee, which is charged by the VA to subsidize affordable loan terms. You can either pay the VA financing fees up front or build them into your monthly mortgage payments.
Eligibility for other VA loans and grants
Native American direct loan
A Native American Direct Loan (NADL) offers home loans to Native American veterans looking to buy or build on federal trust land (Reservations). Unlike other VA loans, this 30 year loan is obtained directly from the VA and not through an approved VA lender. This loan does not require a PMI or down payment. To apply you will need to obtain your COE and contact your local VA office for more details.
Specially adapted housing assistance
Specially adapted housing (SAH) the grants help veterans and serving members with service-related disabilities obtain permanent housing adapted to their disability. These funds can help buy or improve a home you plan to live in for the long term. Eligible individuals can get up to $ 100,896 in SAH grants for fiscal year 2021, but keep in mind that only some disabilities count for this grant.
You are eligible for an SAH grant if you have one of the following disabilities:
- You have lost (or lost the function of) more than one member
- You have lost (or lost function) of a lower leg due to “natural” illness or injury
- You are blind in both eyes
- You have “some” serious burns
- You lost (or lost function) of a foot or leg after 9/11, so you cannot balance or walk without a mobility device (such as a brace, crutches, canes or a Wheelchair)
Special subsidy for home adaptation
Special Home Adaptation (SHA) the grants are similar to the SAH grants in that they help disabled veterans obtain permanent housing. The differences are the maximum amount granted ($ 20,215 in fiscal year 2021) and the disabilities covered. You are eligible for an SHA grant if you have lost or lost function in both hands, have “some” severe burns, or have “some” breathing or breathing problems.