VA home loan requirements


Veteran with familyThe number one requirement for a VA home loan is meeting the service eligibility requirement.

The VA home loan requires a certificate of eligibility. The certificate of eligibility (COE) is the Veteran's Administration confirmation of eligibility for a VA home loan. The COE requirement can be obtained online (Internet Explorer is the preferred web browser) or the COE can be requested through an authorized VA mortgage lender.

Most VA lenders will require at least two years of consistent, full-time employment of at least 30 per week. Although, if the veteran's military service can count if the civilian employment is similar to the military service.

The VA does not have a minimum credit score requirement, however, most VA lenders will require a 620 minimum credit score.

The VA home loan requires a debt to income ratio of 41%, although, the maximum debt ratio may be exceeded with compensating factors. The debt to income ratio is a comparison of monthly income to month debt. The VA home loan requirements are very similar to FHA, VA and conventional home loans.

What is a VA home loan?

In 1944, Congress passed and Franklin D. Roosevelt signed into law the Servicemen's Readjustment Act (the GI Bill of Rights). From this legislation, came the VA mortgage.

The benefits of VA home loan include:

  • Competitive Interest Rates - the VA interest rates are as low or lower than other home loans
  • Easier Qualification - there are fewer hoops to jump through
  • No Pre-Payment Penalty - the VA does not allow lenders to charge a pre-payment penalty
  • No Private Mortgage Insurance - unlike other home loans, there is no monthly mortgage insurance cost
  • Regulated Closing costs - the Veterans Administration
  • Seller Can Pay All Closing Costs - no other loan permits the seller to pay all closing costs
  • VA Loans Are Assumable - and the VA loan is assumable!
  • Zero Down Payment - absolutely no down payment. Finance the entire sales price.

VA home loans can be used to:

  • Build a house
  • Buy a house, a condominium unit in a VA-approved project
  • Buy a manufactured home and/or lot.
  • Improve a home by installing energy-related features or making energy efficient improvements
  • Simultaneously purchase and improve a home
 

How does a VA loan work?

The Veteran’s administration does not provide the mortgage directly to the veterans, but works with banks and mortgage companies to disburse the mortgage money. Veterans apply for a VA mortgage through VA approved mortgage lenders.

The Veteran’s Administration “guarantees” the loan. The guarantee does not mean that veterans are automatically approved for the mortgage or the VA will stand by the condition of the home. The guarantee means that if the vet defaults on the mortgage, the Veterans Administration will reimburse the lender for a percentage of the loss.

Do you have to pay PMI on a VA loan?

VA loans do not require monthly pmi. There is a VA funding fee - see below

VA home loan down payment requirement

No down payment is required with VA loans, however, veterans can make a down payment which will reduce the mortgage amount and subsequently, lower the monthly mortgage payment.

What is a VA funding fee?

The funding fee is a cost that all veterans pay in cash at settlement or finance into the mortgage for the benefit of the lenders should a VA mortgage goes into default. This pool of money is the guarantee money that the VA pays to the lender when a VA mortgage is foreclosed. Veterans receiving a 10% or more disability from the VA are exempt from the VA funding fee requirement.

Does a VA loan cover closing costs?

The VA does not cover closing costs, nor can closing costs be financed with the mortgage, except the funding fee.

Is a VA loan better than conventional??

The VA mortgage does not require a down payment. The minimum down payment for a conventional loan fluctuates between 3 and 5%. The VA does not require a down payment. The conventional loan limits seller paid closing costs. The VA loan permits the seller to pay all "allowable"closing costs on behalf of the veteran. Another benefit is the pmi requirement. Conventional loans require monthly pmi for down payments of less than 20%. (I.e. 5%, 10%, 15%) The VA home loan does not require pmi.

Conventional loan are superior to VA loans if the down payment is 15% or more.

VA home loan vs. FHA?

The FHA down payment is currently 3.5%. Again, no down payment requirement for the VA loan. There is monthly mortgage insurance (pmi) with FHA loans, not so with VA mortgages. Both loans have a funding fee. The FHA limits seller paid closing costs to 6% of the sales price. The VA permits the seller to pay all allowable closing costs.

Frequently Asked Questions About VA Home Loans

► Are VA loans good?

VA loans are very good. The Veteran loan does not require a down payment and the seller is allowed to pay all closings costs. It doesn't get any better than that.

► Are VA loans assumable?

VA loans are assumable, however, specific procedures must be followed in order to release the current veteran from continued obligation on the loan.
VA Questions & Answers.pdf

► Are VA loans hard to get?

VA loans are no harder to obtain than any other loan, perhaps easier, because the cash requirement is not intense as it is with other home loans.

► Can you use a VA loan more than once?

Yes. Veterans can use a VA loan more than once provided that the veteran has paid off the current (previous) VA loan in full and the veteran’s entitlement was restored

► Can you buy a foreclosed home with a VA loan?

The VA loan can be used to purchase a foreclosed home provided the foreclosed home meets the VA appraisal guidelines.

► Can you use a VA loan to buy land?

The VA loan can be used to buy land provided that the purchase is made for the construction of a new home. The VA prohibits an out right land purchase with a VA loan.

► Can I get a VA loan with bad credit?

Only a VA approved lender can determine whether the poor credit will prevent you from obtaining a VA mortgage.

► Can you get a VA loan on a manufactured home?

Yes, but there are specific guidelines. For example, the manufactured home must be attached to a permanent foundation, meet the VA Minimum Property Requirements and adhere to all building codes and zoning requirements.

► Can VA loans be used for investment property?

The VA loan allows for one to four unit properties, provided the veteran occupy one of the units. The VA home loan program does not finance investment properties unless the veteran occupy one of the units.

► Who qualifies for a VA loan?

The complete list of eligible applicants are listed on the VA Questions & Answers.pdf