VA Loans - All You Need To Know
What is a VA loan anyways? VA stands for Veteran Affairs, and VA loans are designed for our veterans. They help both active duty military and veterans qualify for homeownership and are one of the most popular choices among eligible first-time homebuyers and eligible military personnel because of the exceptional terms they offer to military borrowers. A VA loan is a mortgage guaranteed by the U.S. Department of Veteran Affairs. They offer lower interest rates and better terms than conventional mortgages and are offered exclusively to service members and certain military spouses.
VA Home Loans are provided by private lenders, such as banks and mortgage companies. VA guarantees a portion of the loan, enabling the lender to provide veterans with more favorable terms.
Your length of service or service commitment, duty status and character of service determine your eligibility for specific home loan benefits. To get a VA loan, you need a Certificate of Eligibility (COE). The type of COE you need depends on your type of service: veteran, active duty service member, current or former National Guard, etc. To obtain your COE yourself, apply online through the VA benefits portal or by requesting via mail. Your lender can obtain your COE for you. The VA requires all VA-approved lenders to include a COE in their loan underwriting process, so the fastest way to get your COE is through a VA lender. They can usually obtain it for you within minutes through a lender-only portal provided to lenders by the VA. Programs that are offered are:
Purchase Loans and Cash-Out Refinance: VA-guaranteed loans are available for homes for your occupancy or a spouse and/or dependent (for active duty service members). To be eligible, you must have satisfactory credit, sufficient income to meet the expected monthly obligations, and a valid Certificate of Eligibility (COE).
Interest Rate Reduction Refinance Loan (IRRRL): The IRRRL is a "VA to VA" loan, meaning it can only be done if you have an existing VA guaranteed loan on the property. The IRRRL is generally performed to lower the interest and reduce the monthly payment on the existing VA guaranteed loan.
Native American Direct Loan (NADL) Program: The NADL program helps Native American Veterans purchase, construct, improve, or re-finance a home on Native American trust lands. Your tribal organization must participate in the VA direct loan program. You must have a valid Certificate of Eligibility (COE).
Adapted Housing Grants: VA helps Veterans with certain total and permanent disabilities related to your military service obtain suitable housing with either a Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA) grant.
VA loans provide access to special benefits:
No down payment required: The most attractive feature of VA loans is their zero percent down payment, so you can become a homeowner without having to save for a down payment.
Lower interest rates: Military borrowers typically receive interest rates well below those of conventional borrowers.
No monthly mortgage insurance premiums: Mortgage Insurance (MI) payments can costs borrowers hundreds every month – an expense you’ll never have with a VA loan.
No prepayment penalty: You can sell or refinance at any time without having to pay a penalty.
Reduced funding fees: You can qualify for reduced loan fees or exemption from funding fees for Veterans receiving service-connected disability compensation.
Ability to finance the VA funding fee: The funding fee can be rolled into the entire loan amount.
Less than perfect credit usually accepted: You don’t need to have perfect credit to qualify for a VA loan.
Closing costs may be paid by the seller.
For homes inspected by VA during construction, a warranty from builder and assistance from VA to obtain cooperation of builder.
VA assistance to veteran borrowers in default due to temporary financial difficulty.
You can pay off a VA loan early without incurring any extra fees because there is no prepayment penalty on a VA loan. You can pay it off in full, or you can pay it down more aggressively than the normal monthly payments require along the way. If you pay the loan down extra along the way, it doesn’t lower your monthly payment.
What Lenders Can and Cannot Charge?
Lenders are, however, allowed to charge 1% flat fee (origination fee). They are not allowed to charge for a bunch of other things, like processing fee, interest rate lock-in, document prep fees, lender appraisals, postage costs, notary fees, tax service fees, etc.
All that is required is one time VA funding fee, that can be included in the loan. But, not everybody has to pay this VA funding fee. If the veteran receives disability compensation they are exempt from that funding fee.
There's been a recent change in the law. They have added in that beginning in 2020 those with a purple heart will also be exempt from the funding fee.
All of the charge by lenders are those 1% origination fees. That is attorney fees cannot be charged by the lender and then absorbed by the VA or the veteran himself/herself. They also can't pay for real estate broker or agent commissions. They can't pay for flood zone determination that the lender would be asking for.
VA loans are not the same all around the country. They are different and they follow along with the FHA guideline. The loan limit for the VA loans at the moment matches up with the FHA loan limit.
VA loan eligibility typically requires one of the following:
• 90 consecutive days of service during war time • 181 of active service during peace time • 6 or more years of service in the National Guard or Reserves • Being the un-remarried, surviving spouse of a service member who died in the line of duty, or because of a service-related disability.
VA loans aren’t available to purchase second homes or investment properties. A veteran must occupy a home which he/she buys with a VA loan as a primary residence. A VA loan isn’t a one-time benefit, so you can get a VA loan even if you’ve had one for a previous home in the past.
Veteran can get a VA loan for a condo, but the VA must approve the condo project. The agency maintains a database of pre-approved condos, and if the condo you want isn’t on this list, you’ll need to work with your lender to get the condo you want to buy approved. This process can add considerable time to a home purchase transaction, so make sure you do this research before writing an offer, and make sure your real estate agent is aware you’re getting a VA loan.
Steps to get VA loan:
Step 1: Determine Your VA Loan Eligibility
VA loans, which are backed by the Veteran’s Affairs department and made by local mortgage lenders throughout the country, have a critical first step: proving you’ve met the VA’s service member requirement.
You prove this with a document called the Certificate of Eligibility (COE). The type of COE you need depends on your type of service: veteran, active duty service member, current or former National Guard, etc.
You can obtain your COE yourself through the VA benefits portal, by requesting via mail, or you can have your lender obtain it for you.
Step 2: Shop for VA Lenders
The VA requires all VA-approved lenders to include a COE in their loan underwriting process, so the fastest way to get your COE is through a VA lender — they can usually obtain it for you within minutes through a lender-only portal provided to lenders by the VA.
It’s easy to find lenders who make VA loans. You can screen VA lenders by viewing the rates and reviews for lenders who come up in your search results.
Then you can make direct contact to further interview with the VA lenders who look most favorable to you.
Step 3: Select VA Lender(s) and Get Pre-Approved
Often people start shopping for homes before they’ve been pre-approved by a lender, but this can lead to trouble if you can’t get a loan for a home you want.
So the next step is to apply for a VA loan with one or more of the VA lenders you feel most comfortable with, and get pre-approved.
Lenders must provide formal written rate and fee quotes to you within three days of application.
After obtaining your COE (or reviewing the one you’ve already obtained), the lenders will ask you to provide detailed residence, employment, income, asset, and debt documentation.
It’s critical to provide all documentation your lender requests in a timely fashion. All lenders must follow the same VA loan approval guidelines, so if one lender is asking for less upfront, they may need to ask for it later.
At a minimum, you will need to provide:
Full credit history, including scores from the three major credit bureaus (Equifax, Transunion, Experian), obtained when you authorize a lender to run your credit report
Two years of residence history, including rental or ownership costs
Two years of employment history (See notes below if you’re on active duty.)
Two years of filed tax returns
Two years of W2s for all jobs
Most recent two months’ statements for all bank, investment, and retirement accounts
The VA says your total monthly housing cost plus all other monthly payments (car loans, student loans, etc.) cannot exceed 41 percent of your income. There are select exceptions to this rule, which you can discuss with your lender.
If you’re on active duty, you’ll need a Leave and Earnings Statement (LES) with an Expiration of Term of Service (ETS) date less than 12 months after loan closing to prove income, and a Statement of Service to prove ongoing service and income.
If your separation date is 12 months or less from your loan closing, you must document income in one of the following ways:
Evidence of re-enlistment or extension showing new ETS date more than 12 months from date of loan closing.
Statement that you intend to re-enlist, accompanied by a statement from your Commanding Officer that you’re eligible to re-enlist and that they believe your re-enlistment will be granted.
Offer letter from private employer after release from active duty. Must include start date, rate of pay, and whether employment is full-time or part-time.
Step 4: Choose a Real Estate Agent
Once your VA lender obtains your COE, receives all of your documentation, and gets your loan approved by the lender’s underwriter, you’re ready to find a local real estate agent.
Since you know what you’re approved for, you can select price ranges in your search to find a specialist in your price point.
Your agent doesn’t need to have particular specialty with veterans or VA loans, but make sure you introduce your lender to your agent.
This way, your lender can verify for your agent how much home you’re approved to buy with VA financing.
Step 5: Look for Homes and Write Offers
Your agent will show you properties until you see something you want to write an offer on. If you’re curious what the monthly mortgage will cost on a particular home, you can use a VA loan calculator to estimate the price.
An offer is a purchase contract that your agent presents to the seller’s agent.
The purchase contract tells the seller what price you’re willing to pay, what inspections and/or repairs you want done, how fast you’ll complete your inspections, and how fast you can close.
The purchase contract should be accompanied by a pre-approval letter from your lender to show the seller that you have been approved.
Your pre-approval ensures that you as a borrower are approved, but a loan is made to a borrower and a property, so the pre-approval letter will usually indicate that the loan won’t be complete until the lender has reviewed the purchase contract, title report, appraisal, and any other necessary inspections.
If the seller accepts your offer, you’re in contract to buy the home.
Step 6: Lender Completes Appraisal and Other Property Underwriting
Your lender will order a VA appraisal on the property you’re in contract to buy. Even though your lender orders the appraisal, the VA appraiser isn’t a lender employee, but rather an independent, licensed, VA-approved appraiser who is randomly assigned by the nearest VA regional loan center.
This ensures that the appraisal won’t be biased in any way.
The VA appraisal is used to determine whether the home is worth what you’re willing to pay for it.
The VA appraisal is also used to assess the condition of the property, with focus on verifying the following items:
Functional roof, heat, plumbing, and electrical systems.
No pest issues such as termites.
No lead-based paint.