What Is a VA Loan and How Can You Be Eligible for It?

VA loans are a popular mortgage option for veterans in the United States. Last year 3.7 million of veterans who are homeowners have used the benefits of VA loans. It helps homeowners to finance 100% of appraised value of home.

Unlike other mortgages, VA loans allow you to purchase a home with a 0% down payment. This can significantly reduce the upfront cost of buying a home. Besides this, VA loans typically offer competitive interest rates compared to conventional loans. Start here! Apply for a VA loan now.

What Is a VA Loan?

VA loans are a mortgage program offered by the US Department of Veterans Affairs (VA). These loans provide full financing to build houses, repair and refinance a mortgage. Qualified borrowers, including veterans and National Guard members, can benefit based on their service period.

VA loans allow you to purchase a home with no money down and tend to have more flexible debt-to-income ratio requirements. However, the application process is similar to other housing loans.

How Does a VA Loan Work?

The VA establishes the eligibility criteria, specifies the terms of the mortgages available, and guarantees the loan. It does not directly provide the financing. Instead, private lenders such as banks and mortgage companies offer VA home loans.

To get the loan you have to provide a certificate of eligibility from VA to the lender. This certificate shows if you are an active duty member or veteran.

VA Loans offers low interest rates compared to other loans. With no down payment and no monthly insurance, these loans are quite easy at requirements.

What Is the Eligibility Criteria for a VA Loan?

The VA home loan eligibility vary based on the service type and period:

1. Service Members

Service members who meet the active service duty requirement can apply for this loan. That is continuous service, without a break, for 90 days.

2. Veterans

The eligibility for a veteran is based on the period of war in which you served. However, you can still apply for a VA loan if you have been discharged from war because of:

• Service-connected disability
• Hardship
• Reduction in force

3. National Guards

The national guards who have been in service for at least 90 days after August 2, 1990, meet the minimum requirement. For all other periods, you can either have 6 creditable years of service from which you were honorably discharged/retired. Alternatively, you should have at least 90 days of non-training active duty, out of which 30 were consecutive days.

4. Reserve Members

The reserve members who have had at least 90 days of active duty after August 2, 1990, meet the minimum requirement. The minimum requirement otherwise is at least 90 days of non-training or 6 creditable years in service. Unless you were discharged honorably, retired, or still serving, the only other eligibility would be if you were transferred to Standby Reserve.

5. Surviving Spouses

As the spouse of a Veteran, you can apply for a VA loan, if any of the following holds for you.

• Missing in action.
• Is a prisoner of war.
• Died while in service or from a service-related disability and you didn’t remarry.
• Died while in service or from a service-related disability and you didn’t remarry until you were over 57 years old or before Dec 16, 2003.
• He/she was disabled but died due to other causes.

How to Qualify for a VA Loan?

The VA home loan qualifications includes:

• Credit Score: The VA does not require a minimum credit score, though the lender might have a cutoff limit of 550.
• Funding Fee: The loan borrowers are required to pay a one-time funding fee. It is usually 1.4%-3.6% of your loan amount. Surviving spouses and disabled veterans are exempted from this.
• DTI: The DTI (debt-to-income) ratio measures the ability of the borrower to return the loan amount. Usually, VA has no limit for dti. However the lender might have a condition.
• Income: It is the amount of cash you have each month eliminating basic living funds. The VA sets the limit based on your living conditions and the number of members in your family.
• Reserve Funds: It is not required, however it is preferred if you have reserve funds.
• Federal Debt: Your loan will be rejected if you have defaulted on any prior loans. Such as student loans or prior VA loans.

» Real Estate Market Updates: Do some research before venturing into the buyer’s market.

What Are the Different Types of VA Loans?

There are 4 basic types of VA loans offered, mostly based on the qualifications and interests of the lender.

• Purchase Loans: VA-backed purchase loans prompt lenders to offer competitive interest rates. This can help build, buy, or renovate a home without making down payments.
• Native American Direct Loan (NADL): The VA offers the NADL program to assist Native American veterans. It helps in buying, constructing, enhancing, or refinancing homes on trust land. You can also take a NADL over existing loans to reduce the interest rate.
• Interest Rate Reduction Refinance Loan (IRRRL): This loan is for refinancing a current loan to reduce monthly mortgage payments. It can even help to stabilize your loan costs.
• Cash-out Refinance Loan: It’s a loan that allows you to replace an existing one with different terms. It also gives the option to convert a non-VA loan into a VA loan.

How Do You Apply for a VA Home Loan?

Here are some steps on how to apply for a VA loan:

1. Check Your Eligibility: If you are eligible for this loan you have to be an active-duty service member, veteran, or surviving spouse. Then you can apply for a VA certificate of eligibility.

2. Apply for VA Home Loan Pre-Approval: Get pre-approval for a loan to streamline your process easy. You can choose any type of loan.

3. Find a Lender: Once you have reached a mutual decision on the amount you require, you should find a lender that suits your needs.

4. Get Your Finances Checked: Underwriting is also an important process done by the lender, who checks your finances for proof of VA eligibility.

5. Sign the Documents: If the appraisal and underwriting are successful, you will then move forward to closing. This is where you sign the final paperwork and receive the keys to your new home.

Pros and Cons of VA Home Loans

Here are some pros and cons to consider while opting for VA Loans.

Pros

• Low Interest: VA loan rates are comparatively lower.
• No Down Payment: There is no downpayment requirement. 
• PMI: Private mortgage insurance can be overlooked.
• Easy Criteria: VA loans have lenient borrowing criteria.
• Equity: You have access to almost 100% of your equity.

Cons

• Residence: VA loans can only be used to finance a primary residence.
• Terms: The interest rate and terms may vary based on lenders.
• Funding Fee: You have to pay VA funding fee.

Can You get a VA Loan as a Non-Veteran?

No, the VA loans are exclusively for qualified military personnel.

However, there are other options like USDA loans, conventional loans, and FHA loans. These options offer requirements of lower credit scores and low down payment. But you have to pay mortgage insurance.

» Buying a House with Bad Credit: Wondering if you can buy a house despite bad credit? Read more to know.

Bottom Line

Eligible members can gain a lot from VA loans. It offers low interest rates and gives full financing to the borrower.

If you are veteran or active service member you can opt for this loan. However, your financial situation may change the benefits you seek.

» Are VA Loans Assumable? Read to know more.

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