A VA Home Loan is a mortgage product backed by the U.S. Department of Veterans Affairs. It is available to U.S. military Veterans, active duty service members and those serving in a National Guard or Reserve component. Spouses of those who died while on active duty or because of a service-connected disability may be eligible as well. It requires no down payment or mortgage insurance.
VA Loan Eligibility
In order to qualify for a VA loan, you must first be a military veteran, active member of a U.S. military branch, or a member of the National Guard or Reserves. Surviving spouses of one these individuals may also be eligible.
Generally, VA applicants must meet one of the following:
- Served 90 days of active service (consecutively) during wartime
- Served 181 days of active service during peacetime
- Been an active National Guard or Reserves member for 6 years or longer
- Have a “honorable,” “under honorable conditions” or “general” discharge to their name. Typically, dishonorably discharged veterans do not qualify.
- For spouses looking to apply, they must be legally married to a service member who died as a result of a service-related injury or in the line of duty.
Other VA loan requirements include:
- Occupancy: Typically, you must move into your home within 60 days of closing and the property must serve as your primary residence.
- Credit score: The VA itself doesn’t have a minimum credit score requirement, but VA-approved lenders may institute their own score standards. Most require at least a 620.
- Income: VA income requirements tend to be looser than those on other loans. There are no set numerical guidelines for how much you must make to qualify; however, you must show you have a stable and reliable income that can support your monthly expenses. Self-employment and part-time income could also qualify, if you have a two-year history of it on your tax returns.
- Loan limits: VA loan limits vary depending on location. On most loans, the cap is $484,350. Counties designated as “High Cost” by the VA could be as high as $726,525.
Veterans and service members don’t need to know if they meet eligibility requirements to start the process. A VA-approved lender can help them assess their eligibility for this benefit, including obtaining their Certificate of Eligibility, a formal VA document that’s required for all VA-backed loans.
VA Loan Pros and Cons
There are many benefits to using a VA Loan to buy a home. For one, they require no down payment and no private mortgage insurance. Additionally, you can expect lower than average interest rates, no prepayment penalty and less stringent credit and income requirements than other mortgage options.
Unfortunately, VA loans can't be used for investment or income-producing property (with exception of multi-family unit purchases) and the VA funding fee increases for subsequent use.
7 Things Veterans Should Know About VA Loans
Here’s what you’ll want to keep in mind as you go into the process:
- VA loans do not require a down payment. VA loans require no down payment and no mortgage insurance. There are funding fees, though. These typically cost 2.15 percent of the home’s total purchase price but can be rolled into your loan balance.
- VA loans are multi-purpose. You can use VA loans on single-family homes, new construction properties, condos, manufactured homes and more. There are also VA refinance options you can take advantage of if you want to change your loan terms, lower your rate or cash in on your home equity.
- The VA loan benefit doesn’t expire. You can use your VA loan benefit multiple times. Your funding fee will go up after your first purchase, but again, these fees can be rolled into your loan.
- You can use a VA loan after bankruptcy or foreclosure. If you’ve experienced a bankruptcy or foreclosure, you could still qualify for a VA loan. The waiting period is typically just one or two years after a substantial financial event such as these (other loans require up to seven).
- Your BAH can help you make your mortgage payments. If you’re still on active duty, you can use your Basic Allowance for Housing (BAH) toward your monthly mortgage costs.
- There’s no mortgage insurance. Most mortgage products require some form of mortgage insurance — especially if you’re putting minimal or no money down. VA loans don’t require any insurance.
- VA loans offer high loan limits. VA loans go up to $484,350 in most areas (and even higher in more expensive regions). As these loans also offer 100-percent financing, it can offer given borrowers significantly more buying power when shopping for a home.
VA loans are generally less risky for mortgage lenders than other loan products. This allows lenders to offer lower-than-average rates and more competitive terms than they could on other mortgage options.