Although some veterans and service members know about the VA loan, a surprisingly high percentage of them do not know about this awesome benefit available at arm’s reach. Here at ADPI, our entire existence revolves around educating and preparing veterans to use and understand their VA loan options.
The VA loan offers a wide range of benefits for veterans. It is a private lender-issued, federally-backed loan, and its purpose is to provide servicemembers and their families the option for home-ownership – made easier (and more possible!) by not requiring a down payment.
To be eligible for the VA loan, borrowers must have a history of active duty service and have achieved a discharge other than dishonorable. Before they can use their loan benefits, veterans must have served a minimum of 90 days during wartime or 181 days during peacetime.
For those who are National Guard and Reservists, there is a 6-year duty requirement before being able to take advantage of your VA loan benefits.
Surviving spouses also have VA loan eligibility but are required to meet specific criteria.
Even if they meet the above circumstances, all borrowers must also meet credit and income requirements. Your chosen lender will be able to inform you of their criteria and procedures.
You may be wondering why you shouldn’t use the conventional loan option for purchase. Although a great tool, conventional loans can be pricey. By using a VA loan, you have the option of a 0% down payment – meanwhile, a conventional loan can be a 20% down payment or more. If you consider a $200,000 purchase, a 20% down payment would be $40,000 – and that amount can be hard to reach for homebuyers.
If you can’t do the 20% down payment for a conventional loan, you may be able to do less, but you’ll have to pay PMI (private mortgage insurance). That adds on an additional monthly cost to your mortgage. With a VA loan, there is no PMI since the loan is government-backed.
Another thing you can count on with a VA loan is the competitive interest rates. Because of the VA loan being federally guaranteed, VA lenders have the flexibility and can offer better terms for borrowers. Less risk for them = more savings for you!
As of January 2020, veterans can borrow as much as a lender is willing to extend. For borrowers with full entitlement availability, there is no more cap—but the approved amount is based on your current income and credit availability.
If you are looking to use a 2nd VA home loan (also called a 2nd Tier loan) or have lost a property loan to foreclosure, the VA loan limits will apply and are the county loan limits provided by the VA.
As mentioned previously, there is no down payment required for a VA loan, but there is the VA funding fee. This fee goes to the Veteran’s Affairs ensures that the VA loan program will be available for future borrowers. The VA Funding Fee will vary depending on the circumstances of the borrower. For instance:
* For your first purchase using a VA loan, the Funding Fee is 2.3% of the purchase price.
* Any VA loans after your first purchase will be a 3.6% funding fee added onto the loan amount.
That sounds like a lot, but don’t panic! The funding fees can be rolled into the total loan amount so that you can pay it over time. Some borrowers are even able to negotiate to have home closing costs paid by the seller, so you may be able to walk away without paying anything at the closing table!
Not only can you purchase existing turn-key homes with the VA loan, but there are other options available to you. For those borrowers looking to build a house, the VA offers the VA Construction Loan. If you’re looking to buy a fixer-upper, there’s also the VA Renovation Loan – which gives you both the money to purchase the home and the money to renovate and do repairs – all wrapped into one loan!
Should you have any questions about the VA loan process, our awesome lending team can help get you going in the right direction!
Kelly Madden is an Air Force spouse currently stationed at Yokota AB, Japan and has been married to her wonderful husband, Rich, for 13 years. She is also mom to three beautiful girls Ava, Lexi, & Evie. A licensed FL real estate agent (currently on referral status), she and her husband own three rental properties in Crestview, FL and are working toward breaking into the multifamily arena. Kelly likes to spend her time working as a virtual assistant, volunteering as a key spouse for 5AF, and horseback riding.