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A Guide to VA Loans

VA Loans



As of 2022, there were around 17.9 million Veterans in the United States. These millions of brave men and women committed themselves to serving the nation, and that doesn’t go unnoticed.

One advantage of being a Veteran is getting certain benefits when it’s time to purchase a home. VA loans make homeownership an attainable goal for Veterans, Service Members, and surviving spouses.

There are many programs available, but you have to meet certain requirements before you can qualify for a VA loan. Learn more about the programs available and how they can help you realize your dream of homeownership in the guide below.

How it Works

VA loans are mortgage loans issued by private lenders (bank, mortgage company, or credit union) and backed by the U.S. Department of Veterans Affairs (VA). When a loan the government backs or guarantees a loan, it means if the home goes into foreclosure, lenders can recoup some or all of the costs.

VA loans are so attractive as they’re $0-down loans, meaning you can finance 100% of the loan. Since VA loans don’t require down payments, they make it easier for Veterans or survivors to become homeowners.

With these no-down-payment loans, you can often borrow up to the Fannie Mae and Freddie Mac conforming loan limit in the majority of areas. That said, lenders still have to approve the loan amount, and will often do so based on your credit history, income, and assets.

It’s best to check VA loan limits in your county before starting the buying process.

Loan types

VA loans come in different shapes and sizes. Depending on your circumstances, you could qualify for one or more of the loans. Here is a breakdown of each loan type and what you need to qualify.

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VA Purchase Mortgage Loan

This is a VA-backed or insured loan offered by private lenders. You can use it to buy your first home, refinance a home, and assume a VA-backed home loan (when a new buyer takes over the seller’s loan).

VA-backed purchase loans have many benefits including not needing a down payment, fewer closing costs, favorable terms, competitive interest rates, and no penalty for paying the loan off early. Another advantage is you don’t need private mortgage insurance (PMI) or mortgage insurance premiums (MIP), which you typically need with other loans when you don’t put down a 20% down payment.

Keep in mind that a home purchased with this loan must be your primary residence.

Interest Rate Reduction Refinance Loan (IRRRL)

If you currently have a VA loan but are unhappy with the terms, the IRRRL is a practical solution. Also known as the Streamline Refinance Loan, it helps you obtain a lower interest rate by refinancing your existing VA loan.

This is good for homeowners who have a high-interest rate or are locked into an adjustable or variable interest rate.

To be eligible for the IRRL you must use it to refinance an existing VA-backed home loan. Thus, you should be able to verify you live in or used to live in that home.

A benefit of IRRRL loans is they allow you to roll closing costs into the loan balance or pay them by accepting a higher interest rate. You can learn more about requirements and eligibility via the official VA website.

Cash-Out Refinance Loan

Homeowners sometimes choose to tap into their home equity to meet other financial obligations. Cash Out Refinance Loan enables you to take cash from your home equity to do anything from repay debt to paying for college funds. It is also for individuals who want to refinance a non-VA loan into a VA-backed loan.

As with any home refinance, keep closing costs in mind and be sure it makes financial sense.

Native American Direct Loan (NADL) Program

This VA loan is directed at Veterans who are Native American or have a spouse who’s Native American. The NADL program helps them finance the purchase, construction, or improvement of homes on Federal Trust Land, or reduce the interest rate on a VA loan.

The NADL has many similarities to purchase loans, such as no down payment, no PMI, and limited closing costs. Another advantage is it’s a reusable benefit, so you can use it for another residence in the future.

Rehab and Renovation Loans

Some people want to make renovations on their home and need funding to do so. The rehab and renovations loan enables them to finance the costs of home improvements. It’s a low-cost way of giving your residence a face lift.

The loan can also purchase a fixer-upper which may not meet the VA’s minimum property requirements for a VA purchase loan.

The value of the home after you renovate will determine the maximum loan amount you can take out. Make sure you factor in additional costs like VA funding fee, loan origination charges, and a tentative construction fee from lenders.

Specially Adapted Housing Grants

SAH grants help permanently disabled Veterans and Service Members purchase a new home, build an adapted home, or modify an existing home to accommodate their disability. The maximum grant amount is $100,896 and it must be used to construct or modify a home to meet the Veteran’s disability-related needs.

There is also the Special Housing Adapted Grant (SHA), which is for improving mobility throughout your home. The current maximum for this amount is $20,215, but it increases annually.

Other Resources

Many states offer resources to Veterans, such as property tax reductions for Veterans who are 100% disabled. There is also the Specially Adapted Housing Assistive Technology Grant Program to help improve home adaptation or make it easy for Veterans or Service Members to live independently.

Learn more about other available resources by contacting the Veterans Affairs Office in your state.

General Requirements

To get a VA loan, you must be a qualified U.S. Veteran, active-duty military personnel, or surviving spouse of a Veteran. Other essential requirements are listed below.

  • You’re the surviving spouse of a Veteran who died on duty or from a disability that occurred during service. If your spouse is a Prisoner of War or missing Service Member, you’re also eligible.
  • Income
  • Property standards must meet safety standards and building codes, you must also live in the residence
  • VA certificate of eligibility required before loan closes. It can be obtained through a VA approved lender or directly from the VA.

In terms of credit score requirements, the VA doesn’t set a minimum credit score, but lenders can set their own. They may also look at your debt-to-income ratio to determine whether you can afford to pay the loan back. If your DTI is above 43% you may consider paying down some of your debt before applying for a loan.

How to apply for your Certificate of Eligibility (COE)

The certificate of eligibility is a document that shows lenders you’re eligible for the VA home loan benefit. You won’t be able to close on your loan without one, so it’s critical you get it as early as you can. There are two ways to apply; directly through the VA or via your VA-approved private lender.

The documentation you need to apply depends on your situation. For instance, Veterans need a copy of their discharge or separation papers (DD214), while a Service Member needs a statement of service signed by a commander, adjutant, or personnel officer.

Some other general requirements to get the certificate include:

  • Serving 181 days active duty during peacetime
  • Serving 90 days active duty during war time
  • 6 years in reserves or national guard
  • Being a surviving spouse of a Veteran killed in line of duty

For a more exhaustive list, visit the VA website.

Depending on your method of application, it could take up to 6 weeks for you to receive your certificate. While COEs don’t expire, you can only use them for a single VA loan application.

You can begin your application on the platform. Alternatively, print out a request for your COE and submit it to the VA.

VA home loan programs for surviving spouses

If you are the surviving spouse of a Veteran, there are VA home loan programs designed for you. Some grounds for eligibility include if your spouse;

  • Is missing
  • A Prisoner of War
  • Died in service
  • Died due to service-related disability

If your spouse died, you’re only eligible if you didn’t remarry, didn’t remarry before 57 years old, or before December 16, 2003.

Before you can access benefits, you will need a COE as mentioned above. Whether you’re receiving Dependency and Indemnity Compensation (DIC) benefits determines how you apply.

Those receiving DIC need to first download VA Form 26-1817 (PDF). However, surviving spouses who don’t receive DIC must first fill out form VA Form 21P-534EZ (PDF), which is an application for DIC, survivors’ pension and/or accrued benefits.

Regarding loan options, you have access to purchase loans, an IRRRL loan, and a cash out refinance loan.

Closing fees

If you aren’t required to pay closing costs or monthly mortgage insurance, what closing costs are associated with VA loans?

VA funding fee

One-time payment paid on VA direct or VA-backed home loan. The payment that helps lower the cost of the loan to U.S. taxpayers, seeing as down payments and mortgage insurance aren’t mandatory.

The fee depends on the type of loan you get, and it’s calculated as a percentage of the total loan amount. Other factors that influence the fee include whether it’s your first time getting a VA loan and your down payment amount if you decide to make a down payment.

For example, if it’s your first time using a VA loan and you put down a deposit below 5%, your VA funding fee would be 2.3% of the loan amount. So, if you purchase a $300,000 home and make a deposit of $15,000, your VA funding fee would be $6,555.

You can choose to include the fee in your loan and pay it monthly or pay it all at once at closing. Doing the latter means you pay more in interest over the life of the loan. Ultimately, the larger your down payment, the lower your VA funding fee.

Some people are exempt from the VA funding fee such as surviving spouses, those collecting benefits for service-connected disabilities, or Service Members who can receive compensation but aren’t because they’re on active duty. You can read more about the VA funding fee exemptions on the US Department of Veterans Affairs website.

Loan origination fee

A loan origination fee is the cost lenders charge for processing your loan. This includes things like underwriting the loan and preparing documentation. The Department of Veterans Affairs has capped lender’s origination charges for VA loans at 1% of the loan amount.

Other fees

There are certain closing costs lenders can’t charge, such as a lender’s fee for attorney services, prepayment penalties, mortgage broker commissions, and settlement charges.

However, as with conventional loans, you may have to pay for the following;

  • Credit report
  • Title insurance
  • Taxes
  • Homeowners and flood insurance
  • Appraisal
  • Government recording
  • Insurance
  • Survey

You can get a comprehensive list of all closing costs from the loan estimate form and closing disclosure provided by the lender before closing. To reduce your out-of-pocket costs, see if the seller is willing to contribute to or cover all closing costs. For example, they may be open to paying for the VA appraisal, state and local taxes, or recording fees.

There are also closing costs assistance programs in each state that can help with covering the cost of these fees.

Steps to apply for a VA Loan

To begin the process, find your state’s regional loan center and learn about eligibility requirements and the underwriting process. You can then follow the below step-by-step process to secure your home.

  1. Look for a VA Approved Lender
  2. Get a Certificate of Eligibility (COE)
  3. Get pre-qualified. Before looking for houses, it’s a good idea to get pre-qualified for a VA loan
  4. Look for a home
  5. Get it appraised
  6. Close

Buying a home as a Veteran can be a fulfilling achievement, especially after years of service. However, taking your time before embarking on the journey to home ownership can make the process smoother.

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Trouble making payments?

Life circumstances change, and this can cause difficulty keeping up with mortgage payments. If this happens to you, know there are options available to help prevent foreclosure. Some options include:

  • VA financial counseling: Mortgage counselors employed by the VA give you advice and help you get back on track. They can work with your home loan servicer and negotiate favorable terms to help you avoid foreclosure.
  • Repayment plan: Helps you get back on track if you’ve missed payments. You’ll need to pay an added amount monthly to cover payments you’ve missed.
  • Special forbearance: You’re given extra time to catch up with payments
  • Loan modification: Missed payments are added to your balance and you can agree on a new payment schedule with your mortgage servicer
  • Short sale: Servicer takes the entire amount of home sale to cover the debt you owe. Usually ideal if you owe more than the house is worth.
  • Deed-in-lieu of foreclosure: You sign over the deed to your servicer–– forfeiting ownership––to prevent foreclosure.
  • Private sale: Servicer gives you time to sell the house to prevent foreclosure.

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