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VA loans are for eligible military service members and eligible surviving spouses, and their biggest attraction is that they allow you to purchase a home without paying cash.
With a VA loan, you also don’t have to pay for private mortgage insurance. Instead, VA borrowers pay a financing fee at closing or transfer it to their loan.
Here’s what you should know about VA loans before applying:
What is a VA loan?
A VA loan is a mortgage that benefits individuals who have served in the US military. By guaranteeing a percentage of each home loan to help veterans, the Department of Veterans Affairs reduces the risk to lenders.
This means that eligible borrowers can get a home without paying a down payment or paying private mortgage insurance (PMI).
Your loan limit is determined by your VA maturity, which is the amount VA will pay your lender if you default on the loan. Here is a quick detail:
- full entitlement: There is no limit to the loan. You can borrow as much as you are financially qualified.
- Discounted entitlement: Subject to loan limits. The VA loan limit is $548,250 in most US counties, and $822,375 in high-cost areas.
As the accrual decreases, you may have to make a down payment. Most lenders require that your maturity plus down payment be at least 25% if the loan amount is more than $144,000.
Learn More: VA Loan vs. Conventional Loan: How to Choose
Requirements for obtaining a VA home loan
Essentially, anyone who has served in the US armed forces and has not been dishonestly discharged may be eligible for a VA loan, although the specific requirements depend on when you served and the type of military you served in.
Here’s a quick look at how VA loan requirements compare to typical traditional loan requirements:
|VA Loans||conventional loans|
|Balance level||None, but lenders may impose a minimum, such as 640||620|
|Debt to Income Ratio||None, but ideally no more than 41%||50% max|
|Mortgage Insurance||None, but you may have to pay a VA finance fee||Usually required with a discount of less than 20%|
|Ownership Requirements||Basic accommodation only||Can be used for primary residence, second home or real estate investment|
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Although the VA will guarantee up to 25% of your loan, the lender will still bear most of the risk. As a result, lenders often have borrowing requirements that are more stringent than the minimum allowed by the Department of Veterans Affairs.
For example, even though the VA does not have a minimum credit score, you should not expect to qualify with a low credit score.
Military service requirements
Not everyone who served in the armed forces is eligible for a victim assistance loan. For example, you may not qualify if you served less than your minimum service period.
In general, these are the military service requirements for VA loan eligibility:
- Service for 90 continuous days of active duty during the war (less if you were discharged due to a service-related disability)
- Service for 181 continuous days of active duty during peacetime (less if you were discharged due to a service-related disability)
- Service for 24 continuous months of inactive service during most of the 1980s and 1990s
- Being the surviving spouse of a veteran who was killed, lost in action, or held as a prisoner of war
National Guard and Reserve members can also qualify for VA loans. Here are the basic requirements for these members:
- 90 days of active duty
- 6 recognized years of service
While Credible does not offer VA loans, we can help you find a great rate for your next conventional loan. Credibility makes it easy to compare pre-qualified rates from all partner lenders. Price comparison is free and only takes a few minutes to complete.
When you buy a home with a VA loan, you must use it as your primary residence. You can buy a new or existing one-to-four home, an apartment, or a manufactured home.
The VA requires that any property purchased with a VA loan be in decent and habitable condition. Along with many other requirements, the property must:
- Be structurally sound
- Not exposed to regular floods
- Compliance with zoning laws
- get electricity
- Get safe drinking water
The approval of your VA mortgage is also dependent on the home appraisal, which must be performed by a VA approved appraiser.
Depending on where you live, the evaluation may take up to two weeks. Assessment fees vary from state to state, but you should expect to pay several hundred dollars.
Credit score requirements
Technically, there is no minimum credit score that you must meet to obtain a VA loan. However, VA lenders often prefer to see scores similar to those required for a conventional loan – 620 and above.
The typical VA loan borrower has a credit score of 711 to 725, according to recent data from mortgage software company Ellie Mae.
Learn more: Can you buy a home without credit?
Debt to Income Ratio Requirements
The VA also does not set a maximum debt-to-income ratio. Again, lenders typically prefer seeing a DTI of no more than 41%.
Down payment requirements
Unlike most other types of mortgages, VA loans do not require a minimum down payment, assuming you have the full maturity. However, if you cut enough money, you can reduce your financing fees.
VA Financing Fee
Most VA borrowers pay a financing fee of 1.4% to 3.6% of the loan amount. This fee helps keep the VA loan program in place so that all eligible veterans, service members, and their eligible surviving spouses can take advantage of it.
The financing fee depends on whether you use your VA benefit for the first time or at a later time and how much you lose:
|If the first batch…||Your VA financing fee will be…|
|first use||less than 5%||2.3%|
|5% or more||1.65%|
|10% or more||1.4%|
|After the first use||less than 5%||3.6%|
|5% or more||1.65%|
|10% or more||1.4%|
You can either pay the finance fee at closing or transfer it to your loan. It is not required if you receive VA compensation for a service-related disability or if you have received a Purple Heart.
How to Apply for a VA Home Loan
Applying for a VA loan differs from applying for a traditional mortgage in that you will need to find a lender who knows how to process VA loans—and you may find the process easier if you choose a lender that specializes in it.
You will also need to obtain a Certificate of Eligibility (COE) that tells the lender that you qualify for the VA mortgage program and have the right to use. You can ask your lender to withdraw your Certificate of Excellence on your behalf, or you can apply online or by mail.
Here are the documents you’ll need to get your benefits:
|veteran||A copy of the release papers or dismissal papers (DD214)|
|service member||Service Statement – signed by your commander, assistant, or personnel officer|
|Former member of the National Guard or Reserve||A copy of the discharge or separation papers (DD214).|
|A current member of the National Guard or the Reserves that has never been activated||Service Statement – signed by your commander, assistant, or personnel officer|
|Dismissed member of the National Guard and never activated||
|A member released from reserves and has never been activated||
|surviving spouse||Veterans Discharge Documentation (DD214) – if available – and other documents based on whether you receive Dependency Compensation and Indemnity (DIC) benefits.
To see the full list of required documents, click here.
Pros and cons of a VA loan
While VA loans allow you to purchase a home without cash and do not require you to pay a monthly mortgage insurance fee, they do have an additional expense for VA financing fees.
VA loan pros
- No down payment required
- No monthly mortgage insurance premiums
- Financing fees and closing costs can be transferred to your loan
- Interest rates are generally lower than conventional loan rates
VA loan cons
- With none, it can be easy to end up owing more than the value of your home
- VA financing fees can add to the cost thousands
- Cannot be used to purchase a second home or investment property
- Rigorous evaluation process
Credible does not currently offer VA loans, but we can help you find a great deal on a traditional mortgage. You can view pre-qualified rates from partner lenders in the table below.