VA Loan

VA Home Loans

What is a VA loan?

Prospective homeowners and homeowners who want to refinance an existing loan have many options from which to choose. Among them are VA loans.

VA loans, which the U.S. Department of Veterans Affairs (VA) guarantees, are available only to U.S. military service people, veterans, some surviving military spouses and others who have served their country in specific ways. The Department of Veterans Affairs (VA) does not lend money for VA loans, but does guarantee a portion of the loan made by private lenders such as banks and mortgage companies in case the borrower defaults on the mortgage. The VA essentially agrees to repay a portion of the loan to the bank if the borrower defaults or forecloses.

VA loans offer many benefits, including no down payment loan options, favorable interest rates, and more lenient credit and income requirements than conventional mortgages. Note that VA loans are for primary residences only.

Who is eligible for a VA loan?

The great news is that most members of the regular military, veterans, reservists and National Guard may be eligible to apply for a VA loan. Additionally, spouses of military members who died while on active duty or as the result of a service-connected disability may also apply. There are time constraints for application:

• Active-duty military personnel qualify after approximately six months of service.
• Reservists and members of the National Guard must wait six years to apply, but if you are called into active duty before that, you gain eligibility after 181 days of service.

You may also qualify if you:

• Served 90 consecutive days of active service during wartime.
• Served 181 days of active service during peacetime.
• Have been an active member of the National Guard or Reserves for six years or more.
• Are married to a service member who died in the line of duty or as the result of a service-related disability.

Note that time of service is not the only requirement that qualifies you for a VA loan. Applicants must also meet other lender requirements.

These are for reference only. A loanDepot loan consultant and the VA Eligibility Centerexternal link opens in new tab can provide more information for your specific eligibility. After you establish eligibility, you will need to apply for Certificate of Eligibility (COE)external link opens in new tab through the U.S. Department of Veterans Affairs website.

What are the benefits of VA loans?

No Down Payment

VA loans have no down payment requirement, so homebuyers can finance up to 100 percent of the purchase price of their home. This means that a qualifying veteran who is approved for a mortgage will not be asked to pay any money as a down payment. Homeowners can also refinance up to 100 percent of their home's value, or in some cases even higher.

No Upper Loan Limit

As of January 1, 2020, veterans and military service members no longer need to abide by the VA loan limits. The VA no longer caps the size of a loan a veteran can get with no money down, however, loan approval is still determined by the lender issuing the mortgage.

No PMI Requirement

Competitive VA Mortgage Rates

Although the VA mortgage is not offered directly through the Veterans Administration, the loans are partially guaranteed by the federal government. This allows lenders to offer loans at very competitive terms and interest rates in comparison to other types of mortgages.

Less Stringent Restrictions

While a VA mortgage's qualifying requirements are less strict than those for a conventional loan, an applicant still needs to have sufficient income to buy a home. However, since many veterans have spent time overseas and have not always established credit, the VA reviews the entire loan profile holistically before making a determination based on a variety of other factors.

Funding Fee Flexibility

The VA funding fee (which helps the VA offer all the benefits of the VA loan program) can be financed into the loan, so you will not have to pay it upfront in cash. And certain veterans are exempt from paying the funding fee, including veterans who are receiving or are entitled to receive VA compensation for service-connected disabilities and surviving spouses of veterans who died in service.

Lower Closing Costs

The VA limits the closing costs lenders can charge to VA loan applicants. This is another way that a VA loan can be more affordable than other types of loans. Money saved can be used for furniture, moving costs, home improvements or anything else.

Not Just A One-Time Use

Another important piece of information: If you are eligible for a VA loan you can use the VA loan benefit over and over again on subsequent homes or when refinancing a VA loan into another VA loan – as long as each loan is repaid first, such as when a home is sold.

What is the difference between a VA loan and a conventional loan?

Just like conventional loans, VA loans are issued by private lenders, but they’re insured by the government. VA loans are generally a better deal than conventional or FHA mortgages for the eligible veterans, active military, and reservists who have earned access to this benefit through their service to our country. As previously mentioned, these government-backed loans come with significant benefits that help veterans purchase with zero or low minimum down payment and competitive VA mortgage rates.

Conventional loans feature no government guarantees and adhere to the standards and requirements of government-sponsored enterprises Fannie Mae and Freddie Mac. Unlike the no down payment feature of the VA loan, these enterprises require the conventional borrower to put down at least 3 percent down toward the purchase of the new home. In addition, conventional loans with a down payment of less than 20 percent require mortgage insurance that the borrower must purchase, which the VA loan requirements do not impose.

What are the property requirements for VA loans?

As with other government-insured home loans, the VA has specific property requirements. VA home loans can be used for:

• 1-4 unit residential homes
• VA-approved condominiums
• Construction of a new or existing home
• Manufactured homes

It’s important to note that eligible borrowers may only use VA loans for their primary residence. You cannot finance an investment property or vacation home with a VA loan.

Other uses for VA loans

Purchasing a home is just one way to utilize the VA loan benefit. Borrowers can also use VA loans in the following ways:

VA cash-out refinance – A cash-out refinance is an excellent option if you are looking to pay off credit cards, consolidate debt, finance home improvements or pay off personal expenses.

Interest Rate Reduction Refinance Loan (IRRRL) – The Interest Rate Reduction Refinance loan enables existing VA loan holders the opportunity to get a lower interest rate. If you select this loan, you will refinance your current VA loan into another VA loan.

Native American Direct Loan program

Adapted housing grants

If you're eligible for a VA loan, this type of home mortgage should definitely be on your short list of loans to consider. That's because the VA loan truly offers the most attractive package of benefits of just about any home loan available today.

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VA loans subject to VA Eligibility. Terms and restrictions apply