VA home loans can help Veterans, service members, and surviving spouses to buy, build, improve, or refinance a home. You’ll still need to have the required credit and income for the loan amount you want to borrow. But a Veterans home loan may offer better terms than with a traditional loan from a private bank, mortgage company, or credit union.
VA loans are issued by banks and mortgage lenders, with the U.S. Department of Veterans Affairs guaranteeing a portion of the loan. The federal backing gives lenders some extra security, allowing them in turn to provide better terms like $0 down payments, lower interest rates and more flexible underwriting requirements.
VA loan is Guaranteed by the Government, the loan is not provided by the Government, it is provided by a private lender. Should you default on the loan, the Government with will cover 25% of the home value in the foreclosure process. Example, if you default on a $300,000 home, the Government will guarantee 25% of the value. $300,000 x 25% = $75000, which will be paid to the private lender.
Who is Eligible?
· Active Duty and served 90 days or more
· 6 years in national guard / reserves
· Surviving spouse of a veteran
· Must prove your Eligibility
· Statement of Service from Commander (Active Duty)
· Provide DD214 and Certificate of eligibility (Veterans)
A Certificate of Eligibility (COE) is a document generated by the U.S. Department of Veterans Affairs that will inform your VA loan lender that you meet the necessary VA eligibility requirements to obtain a VA loan.
VA property requirements
Qualified borrowers may be able to secure an affordable mortgage even with less-than-stellar credit. Keep in mind, good credit scores will give you better options to qualify for a better interest rate. VA does not set a minimum credit score requirement for VA loan eligibility, but lenders typically do. Because of this, VA loan credit score requirements vary by lender, with most lenders typically requiring a 620 credit score to obtain financing.
VA requires an appraisal to be done on the property to protect both the borrower and the bank.
· For Primary residence only
· Residence can be Duplex, Tri-plex or 4-plex
· VA approved appraiser will inspect and access the home to make sure it’s safe and priced fairly.
· Renovations such as septic tank, if needed to be replaced can be included on the loan amount.
Benefits of VA loan
VA loan are 100% financed and requires zero down payment, this is the primary difference between VA and FHA or Conventional Loans.
· No down payment required
· No Private Mortgage insurance
· No Limit on Loan Amount (except for private Banks and lenders)
· Favorable lending terms
· Easier Loan Qualification
· Financial support from VA (Veterans Affair)
If the loan amount exceeds the county limit, the borrower is required to place a down payment equal to 25% of home value.
VA funding fee is a one-time payment that a Veteran, service members, or surviving spouse would pay on a VA loan. This fee helps lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require a down payment or monthly mortgage insurance (MIP).
The funding fee depends on the on the type of loan and how many times they have used their Certificate of Eligibility.
· 2.3% for first time use with no down payment ($300,000 x 2.3% = $6900)
· 1.4% first time use with down payment of 10% or more
· 3.6% subsequent use without down payment or less than 5% down
· 1.65% subsequent use more than 5% down payment.
The VA funding fee to support the program is waived for Disabled Veterans, Purple Heart Recipients and surviving spouses. This fee can be added to your closing cost or financed into your loan amount.
VA does not allow an individual to take title to a property if that individual is not on either the mortgage or a deed of trust. When a loan is originated that includes a Veteran borrower and a non-borrower spouse, the Veteran borrower must sign all documents including the mortgage note and the mortgage deed of trust required by state law. The non-borrower spouse must sign either the mortgage note or the mortgage deed. If a spouse or other owner does not want to sign a mortgage note and be obligated for a VA home loan, that individual must sign a deed of trust.
Residual income is the amount of money that is left over each month after your major expenses are paid. This includes housing, taxes, and debt payments. The money that remains is usually for things like groceries, gas and other regular household and family needs.
Residual income is sometimes confused for debt-to-income ratio, which is your monthly income vs. your monthly debt. Your debt-to-income ratio is used by your lender to determine VA loan eligibility. However, the Department of Veterans Affairs wants to make certain that you have enough money left over to take care of your day-to-day expenses. For more information about VA loan, please the United States Veterans Affair website.