By: Mutual of Omaha Mortgage
Veterans, military service members and their immediate families have access to a unique, specialized mortgage loan program to help them achieve their dreams of homeownership. Purchasing a home is an important milestone and often one of the largest purchases a person will make in their lifetime. For veterans and service members pursuing the home buying process, a VA loan could be an ideal mortgage product.
What is a VA loan?
A VA loan, or a military home loan, is a mortgage loan that is issued by private lenders and backed by the U.S. Department of Veteran’s Affairs. VA loans help U.S. Veteran’s, active service members, and widowed military spouses purchase homes.
VA Loans for homes can make it easier for Veterans to get approved for a home loan that fits their financial needs. These loans for Veterans often offer lower interest rates than other conventional loans.
Additionally, VA loan requirements are more lenient on credit and income requirements than many conventional mortgage programs. Although there is no minimum credit score requirement for VA loans, lenders typically look for borrowers to have a credit score of 620 or higher, and the VA does require a borrower to have adequate income to cover the loan. Income consists of the amount of income a potential homebuyer makes and the likelihood of continuance.
Loans for veterans, such as the VA loan, specifically allow for a higher debt-to-income ratio than conventional loans. A borrower can spend up to 41% of their pretax income (gross income) on debts, and lenders are allowed to gross up the applicants tax-free income.
The VA loan for homes does not have a limit on how much a potential homebuyer can borrow, but there are limits on how much the VA will guarantee, which is typically a maximum of 25% of the military home loan.
What are VA loan requirements?
In order to qualify for a VA loan for a home, military personal must meet specific VA loan requirements to apply. The VA loan applicant must meet one of the following criteria:
- Be an activity duty service member or an honorably discharged veteran who has 90 consecutive days of active service during peacetime
- Has served more than six years in the National Guard or the Select Reserves
- Is a spouse of a service member who died in the line of duty
A Certificate of Eligibility (COE) will be granted to VA loan applicants who meet the criteria. The COE is used to show mortgage lenders that a borrower qualifies for a VA loan for a home.
The property for a VA Loan for homes must be a primary residence to be eligible for VA loan financing. As with most mortgage loans, a VA Loan requires basic financial information such as employment status, credit history, debt and income information.
Does a VA loan require a down payment?
A VA loan program provides qualified homebuyers the opportunity to purchase a home without a down payment, but the homebuyer can still put money down for a down payment if they are able to do so. This will lower the principal and monthly payments.
Although there is no down payment needed for a home loan for veterans, there is a VA loan limit, which is the amount of liability the VA will take on.
Currently, due to effective lending rules, the VA loan limit ranges from $484,350 up to $726,525 in high balance counties. This rule effectively gives the eligible borrower unlimited buying power with no down payment requirement. In order to qualify for higher loan amount, the borrower cannot have any other VA financed properties and cannot have had a prior VA loan default. If the borrower has another VA financed property or a prior VA loan default, the borrower will be subject to county loan limits.
Mutual of Omaha’s lending parameters under the new VA rules will be up to 1.5 million dollars for VA Loans in all counties.
Although a down payment is not needed for military home loans, a consideration, or an earnest money deposit (EMD) may be required. An EMD is a specified amount of money that has to be an agreed upon amount between the lender and homebuyer. The EMD is due when the contracts are signed, can be used for part of the down payment (if one is required), and can also be refunded if the property transaction is completed.
Do veterans get better interest rates?
VA home loans for veterans are backed by the federal government and are able to charge lower interest rates. It is the borrower’s mortgage lender that sets the interest rate not the VA. Current VA loans rates are typically .375% below the conforming mortgages rates, but a military home loan interest rate is influenced by a borrower’s credit score, loan duration, and current housing market conditions.
What is the process to get a VA loan?
A VA loan for homes has a few steps that go into purchasing a home. These are:
- Selecting a VA Approved Loan Lender
It is important for a military home buyer to choose a lender that is approved by the U.S. Department of Veterans Affairs. Additionally, choosing a lender that has extensive knowledge about home loans for veterans will make the process smoother overall.
Pre-qualifying for a VA home loan involves a lender evaluation of a borrower’s income, credit history and employment status. Pre-approval is important but not required, and choosing this step, a potential homebuyer can get a better understanding of how much home they are able to comfortably afford.
The VA loan process begins once the property contract has been signed. The lender will prepare to order the VA appraisal though the Department of Veterans Affairs. The VA assigns an independent, third-party appraiser to assess the property’s value and condition. Once the appraisal is finalized the loan is clear to close.
Homebuyers closing on a new home with a VA loan will receive a closing disclosure before the loan closure. The disclosure allows buyers to review the final closing costs and loan information that they have received earlier in the process.
What is a FHA VA loan?
An FHA loan and VA loan are two separate types of mortgage loans, but they are similar in that they are both government-backed loan programs. An FHA loan is backed by the Federal Housing Administration and a VA loan for homes is backed by The Department of Veterans Affairs.
If a potential homebuyer is looking into a VA loan for homes, they may also want to look into FHA loans as well to see which option would work best. To learn more about FHA loan programs click here.
How many VA loans can you have in a lifetime?
VA home loan benefits are for a lifetime. There is no maximum amount of times you can use a VA loan for homes.
Veterans who meet the requirements of the VA loan for homes program receive something called VA loan entitlement. This is the specific dollar amount the VA promises to pay the lender if the homebuyer defaults on the loan. The VA loan requirements typically guarantee 25% of the loan limit, meaning borrowers will typically use a quarter of their available entitlement. Since veterans only use a portion of their entitlement to purchase a home, it is possible to rent out that first home and buy again.
Full entitlement can be restored once the original loan is repaid in full, and VA borrowers can sell their current home and then look to purchase a new home with all of their entitlement intact.