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A VA loan, or Veterans Affairs (VA) home loan, is a mortgage where a portion or all of the loan is backed by the US Government through the department of Veterans Affairs. In order to qualify, a Certificate of Eligibility (COE) is required and the borrower must be a service member or veteran or a spouse of a military service member/veteran.
VA Loan Regulations and Application Requirements
Down Payment Requirements
VA loans do not have minimum down payment requirements, however, there is one restriction. If the appraised value of the home exceeds the market value of the home, the difference will have to be paid as a down payment. For example, if the appraised value of the home is $210,000 and the market value of the home is $200,000, you will have to make a minimum down payment of $10,000.
Credit Score Requirements
Although VA loans do not have a required minimum score, most VA backed institutions look for a credit score of at least 620. The average credit score of VA purchase borrowers in 2019 ranged from 706 to 713.
- Insurance: VA loans do not require mortgage insurance or MIP
- Debt-to-Income (DTI) Ratio: VA loans require a debt-to-income ratio of less than 41%.
- Down payment Sources: VA loans do not have any restrictions on the source of the down payment. Gifts and contributions from friends and family members are eligible as down payment.
Home Price Limitations
As of January 1st, 2020, the VA loan limits were removed for all counties. Previously, VA mortgages could not be greater than $510,400 for most counties. However, VA loan limits have now been removed and only a lower-limit of $144,000 still applies. For example, a mortgage amount of $750,000 can be eligible for a VA loan but a mortgage of $120,000 will not be eligible.
Fees and Premiums
VA loans also have an additional cost known as a VA funding fee which ranges from 1.4% to 3.6% in 2020. The fee depends on several factors such as the type of VA loan, whether there is a down payment, and how many times you have already used the benefit. Borrowers with service-connected disabilities and select others might not have to pay a VA funding fee.
Frequently Asked Questions
How do VA loan rates compare to Conventional or FHA Loan Rates?
As a portion of the VA loans is insured by the Department of Veterans Affairs these loans have competitive rates which are often lower than the rates offered by conventional loans and even FHA loans. The reason being that the VA approved lender is secured up to 25% of the loan amount by the government agency in case the borrower of the home defaults. These loans are the best option for veterans with their lower rates and minimal financial restrictions.
How do I get a VA Loan?
The VA loan process is not very different from getting a conventional mortgage. It has various steps such as mortgage qualification, home search, contract, loan processing, and finally closing. VA loans have several benefits such as no minimum down payment or credit requirements making it a great option for veterans. The VA loan process steps are as follows:
- Mortgage Qualification - This is linked to getting your Certificate of Eligibility or COE which will show lenders that you have met the necessary service requirements or have the right status. The pre-approval process is the most important step as it determines if you can get a VA backed home loan. Apart from the COE, the pre-approval process will also look at your financial health such as credit score and income, this will also help determine the size of the mortgage you can afford. Once you get your COE and meet the lender’s requirements you will be pre-approved and can move to the next step.
- Home Search - This is where you find your dream home. All homes such as single-unit, condominiums, multi-complex, and even new construction homes are eligible. Real estate agents can help in this part of the process and can help obtain the best deal that fits your needs.
- Contract - Once you have selected the house you want to purchase, you and your real estate agent need to negotiate the terms with the seller of the property. Closing costs vary between different situations and hence it is best to discuss this with your agent, in some cases the closing costs can be paid for by the seller of the home. Home inspections and the appraisal processes can also be included in the contract.
- VA Loan Processing - Once the contract is signed between the buyer and the seller, the VA approved lender will do an analysis on your credit, income, debt, employment, and have an independent 3rd party appraise the home. If the home purchase value and your financials meet the requirements then the loan will be approved.
- Closing - This last step involves signing the final paperwork with your agent and lawyer, following which you will receive the deed to the property and the keys.
What is the VA Interest Rate Reduction Refinance Loan (IRRLR)?
VA interest rate reduction loan (IRRRL) is also known as VA Streamline Finance or VA-to-VA refinance, involves refinancing an existing VA loan and getting a lower interest rate. The interest rate of your loan determines the size of the monthly payments and if the interest rate reduces the size of the monthly payments also reduces making it easier for the borrower to save money. The VA IRRRL can also be used to refinance an adjustable-rate mortgage (ARM) into a fixed-rate mortgage.
What are the criteria to be eligible for VA IRRRL?
There are certain criteria that need to be met to qualify for a VA IRRRL such as:
- VA Loan Borrower - VA IRRRL is only available to those individuals who already have an existing VA loan and it is not available to first time home buyers. The original entitlement is used and it is a VA to VA refinance.
- VA IRRRL occupancy and proceeds - The individual trying to obtain a VA IRRRL only needs to show that they still occupy the home. All homes such as single-family and condominiums are eligible. The proceeds from the VA IRRRL must be used to pay the existing VA loan and not another debt obligation.
- Status - It is only open to veterans and their spouses and not open to the general public. There is no need to apply for another certificate of entitlement.
- Loan Limit - The loan cannot be larger than the existing VA loan.
There are several criteria that have no restrictions and limits such as income limits, credit score, loan-to-value (LTV) ratio, debt-to-income (DTI) ratio, minimum down payment, and mortgage insurance! Therefore, the VA IRRRL can be easily obtained if you meet the few eligibility requirements and do not require a major change in income or debt.
VA Loan Eligibility Calculator
VA Loans Eligibility Requirements
Certain mandatory requirements need to be met in order to qualify for a VA loan. A Certificate of Eligibility is required for current and former service members once the minimum service requirements are met. Only 1 requirement needs to be met for the branch of service you served, they are as follows:
Branch of Service - Army, Marines, Navy, and Airforce
- 1. At least 90 days of active wartime service OR
- 2. At least 180 days of active service during peacetime OR
- 3. If you are the spouse of a service member that passed away during their service
Branch of Service – National Guard or Reserves
- 1. If you were part of the National Guard or Reserves, then at least 6 years of service OR
- 2. If you are the spouse of a service member that passed away during their service
What Service is considered Wartime and Peacetime Service?
Army, Marines, Navy, and Airforce Service Members
The following table shows which periods are considered wartime service and the requirements
World War 2
|September 16, 1940 To July 25, 1947||At least 90 Days of service |
Less than 90 days if disabled during service
|June 27, 1950 To January 31, 1955|
|August 5, 1964, To May 7, 1975|
|August 2, 1990 To February 28, 1991|
Post-World War 2
|July 26th, 1947 to June 26th,1950||At least 181 Days of service |
Less than 181 days if disabled during service
|February 1, 1955 To August 6, 1964|
|May 8, 1975 To September 7, 1980|
Either War or Peacetime
|February 29, 1991 To Present||24 continuous months, |
At least 90 Days of service
At least 90 days if discharged for hardship, reduction in force,
the convenience of the government
Less than 90 days if disabled during service
National Guard and Reserve Service Members
|August 2, 1990 To February 28, 1991||At least 90 Days of service|
Either War or Peacetime
|February 29, 1991 To Present||At least 6 Years |
At least one of these must be true. You:
Part of Retired List
Were transferred to the Standby Reserve
an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable
Continue to serve in the Selected Reserv
VA Certificate of Eligibility (COE)
What is a VA Certificate of Eligibility (COE)?
Certificate of eligibility is used in VA loans to help lenders determine if the borrower has met the necessary service requirements. Service requirements as described above are linked to the number of days served either during wartime or peacetime.
How do I get my VA Certificate of Eligibility?
There are several simple ways you can receive your VA Certificate of Eligibility:
- Lender - If you have decided on a specific VA approved lender, they can usually get your COE in a very timely manner, all you have to do is provide proof of service.
- Online Application - If you go to the E-benefits portal on the Department of Veteran Affairs website, you can create a new account and get your COE.
- Mail Application - Mail options are also available. Fill out this Request for Certificate of Eligibility form, and send it to one of the regional offices listed on the form.
VA COE and Entitlement Codes
Your Certificate of Eligibility contains useful information for the lender such as your name, Social Security number, and branch of service. It also has an Entitlement Code which informs the lender of your military background and length of service. This code is important because it will determine if you have to pay the VA Funding Fee which is an up-front cost of a VA loan. Certain borrowers such as Purple Heart recipients, eligible spouses, and individuals with a service-related disability are exempt from the VA funding fee.
Most VA entitlement codes are linked to a specific war and others are linked to status. There are 11 different codes as shown below:
|Entitlement Code Number||Era/Status|
|01||World War 2|
|07||Spouse of Prisoner of War (POW) or Missing in Action (MIA)|
|08||Post-World War 2|
While we try our best to get your the best rates, we cannot guarantee that they are always accurate. Casaplorer assumes no liability for the accuracy of the information presented, and will not be held responsible for any damages resulting from its use. Rates shown are for informational purposes only and may differ by zipcode, county, and state. Estimated payments do not include taxes and insurance. Some state and county maximum loan amount restrictions may apply. Casaplorer is not endorsed or sponsored by any mortgage lender or government agency.