VA Loans: eligibility requirements and the application process
Veterans Administration (VA) Loans were created to help active-duty service members, veterans, National Guard, Reserve service members, other uniformed service personnel, and eligible spouses become homeowners.
At Credit Union of Southern California (CU SoCal), we make buying a home in California easy.
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Read on to learn more about VA home loan requirements and how to apply for a VA home loan.
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What are VA loans and how do they work?
VA direct and VA-backed veterans home loans can help veterans, service members, and their survivors to buy, build, improve, or refinance a home. You’ll still need to have the required credit and income for the loan amount you want to borrow.
A
veterans home loan may offer better terms than with a traditional loan from a private bank, mortgage company, or credit union. For example, nearly 90% of VA-backed loans are made with no down payment.
Most mortgage lenders can provide VA loans. Applying for a VA loan is easy. The first step in getting a VA-backed home loan is to request a VA home loan
Certificate of Eligibility (COE). The COE confirms for your VA mortgage lender that you qualify for the VA home loan benefit. Once you have your COE, the mortgage application process is essentially the same as with other mortgage loans.
VA loan limits
If you have remaining entitlement for your VA-backed home loan, you can find out the current
loan limits and how they may affect the amount of money you can borrow without a down payment. As of 2020, if you have full entitlement, you don’t have a VA loan limit.
Benefits of VA loans
VA loan benefits include:
Lower interest rates. VA loans typically have lower interest rates than
conventional mortgage rates. This is because the VA insures the loan, thus reducing the risk for the lender.
May not require a down payment. The VA home loan program doesn't require a down payment.
100% loan to equity value. For veterans seeking to refinance their current mortgage, VA loans let you do a cash-out refinance and borrow up to 100% of your home’s appraised value.
No private mortgage insurance (PMI). Borrowers who make a down payment of less than 20% will typically be required by the lender to pay monthly PMI on a conventional loan. VA loans do not require PMI. Instead, there is a one-time funding fee charged on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. The VA funding fee may be waived for
veterans who meet certain requirements.
Flexible borrowing requirements. In addition to flexible income guidelines, there is no maximum debt ratio, no maximum loan amount, and no minimum credit score requirement.
Benefits for disabled veterans. VA helps veterans with certain total and permanent disabilities related to their military service obtain suitable housing with either a Specially Adapted Housing (SAH) or Special Housing Adaptation (SHA)
grant.
Specially Adapted Housing (SAH) grants. Disabled veterans may be able to get an SAH grant if they are using the grant money to buy, build, or change your permanent home (a home you plan to live in for a long time) and you meet certain
requirements.
Mainly, both of these must be true:
- You own or will own the home.
- You have a qualifying service-connected disability.
If you qualify for an SAH grant, you can get up to
$101,754 for FY 2022. This is the current total maximum amount allowed for SAH grants.
Special Housing Adaptation (SHA) grants. You may be able to get an SHA grant if you’re using the grant money to buy, build, or change your permanent home (a home you plan to live in for a long time) and you meet both of these requirements.
- You or a family member own or will own the home, and
- You have a qualifying service-connected disability
If you qualify for an SAH grant, you can get up to
$101,754 for FY 2022. This is the current total maximum amount allowed for SAH grants.
Temporary Residence Adaptation (TRA) grant. You may be able to get a TRA grant if you meet both of these requirements:
- You qualify for an SAH or SHA grant (see above), and
- You’re living temporarily in a family member’s home that needs changes to meet your needs. (To use a TRA grant, you don’t have to own the house.)
Disadvantages of VA loans
As with any mortgage loan, there are advantages and disadvantages to be aware of. Understanding these will help you determine which loan best meets your needs.
- Only for primary homes. To be eligible, you must live in the home for which you are seeking financing.
- Not all properties are eligible. A VA loan cannot be used to purchase land or investment properties
- VA loan funding fee. If you’re using a VA home loan to buy, build, improve, or repair a home or to refinance a mortgage, you’ll need to pay the VA funding fee unless you meet certain requirements. The VA funding fee is a one-time payment that the veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance.
Types of VA loans:
VA home purchase loan. This is a standard mortgage for a home purchase.
VA jumbo loan. Jumbo loans are considered
non-conforming because they exceed conforming loan limits.
VA renovation loan. This mortgage includes money for purchasing a fixer-upper and making the needed renovation.
VA cash-out refinance. Veterans who already have a mortgage may apply for a refinance that includes additional cash at closing.
VA rate and term refinance. This allows you to refinance to a new interest rate and loan term (duration of the loan).
VA Interest rate reduction refinance loan. The U.S. Department of Veterans Affairs’ (VA) Interest Rate Reduction Refinance Loan (IRRRL) generally lowers the interest rate by refinancing an existing VA home loan. By obtaining a lower interest rate, the monthly mortgage payment should decrease. Eligible borrowers can also refinance an adjustable-rate mortgage (ARM) into a fixed-rate mortgage. No additional charge is made against the veteran’s entitlement because of a loan for the purpose of an interest rate reduction.
VA eligibility requirements are applicable.
VA home loan eligibility requirements
All mortgage loans have loan requirements, which is true of VA mortgage loans as well. As we’ve discussed, eligibility is based on various factors including your length of service or service commitment, duty status and character of service. Within each of these eligibility groups, as well as whether or not you have a service-related disability, will determine eligibility.
Additional VA home loan requirements:
Property type. VA home loans may only be used to purchase a home that will be used as your primary residence.
Credit score. The VA doesn’t require a specific credit score, which means all applicants must meet the lender’s credit score requirement.
Income. The VA doesn’t require a specific income, but proof of income or employment will be required.
VA loan limit. If you have remaining entitlement for your VA-backed home loan, you can find out the current
loan limits and how they may affect the amount of money you can borrow without a down payment. As of 2020, if you have
Full Entitlement, you don’t have a VA loan limit. Eligible veterans, service members, and survivors with full entitlement no longer have limits on loans over $144,000. This means you won’t have to pay a down payment, and the VA guarantees to your lender that if you default on a loan that’s over $144,000, they’ll pay them up to 25% of the loan amount.
Reserve funds. The VA doesn’t require that you have cash reserves to qualify for a mortgage loan, however, lenders may have a reserve requirement.
Down payment and assets. No down payment is required by VA unless the purchase price exceeds the reasonable value of the property, or the loan is a Graduated Payment Mortgage (GPM). The lender may require a down payment if necessary to meet secondary market requirements. “liquid assets” and cash reserve, or reserved funds are technically the same thing. There is no specific required amount, but the lender will want to confirm that you have money in the bank and enough income to repay the loan.
Funding fee. VA home loans don’t include PMI, but do include a similar funding fee. The fee is a one-time payment that the veteran, service member, or survivor pays. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. The VA funding fee may be waived for
veterans who meet certain requirements.
How to apply for a VA home loan
- Obtain your Certificate of Eligibility (COE). You may be able to get a COE if you didn’t receive a dishonorable discharge and you meet the minimum active-duty service requirement based on when you served.
- Get preapproved. A mortgage loan pre-approval from a mortgage lender lets you know how much of a mortgage loan you would likely qualify for and the interest rate.
- Research and view homes. With your pre-approval in-hand you can work with a realtor to view homes. A realtor isn’t required to shop for a home, but working with an agent has advantages, including their ability to negotiate the price on your behalf and guide you through the purchase process.
- Make an offer. If you’re working with a realtor, he or she will submit your offer on the home you would like to purchase. Once an offer is accepted by the seller, you can move forward with the mortgage application process.
- VA appraisal and underwriting. As part of the mortgage approval process, you will need to get a property appraisal to determine the market value of the house you wish to purchase. All mortgage loans must travel through a lender’s underwriting process.
- Close. Once your mortgage application is approved, the loan is clear to close. These days, many closings are done virtually with funds wired to the seller. A Title Company, chose by the seller, will typically manage the closing.
Learn
how to get a mortgage in 10 easy steps.
VA loan FAQs:
How many times can I use a VA loan?
If you’ve already used your basic entitlement, you may be able to “restore” the entitlement or use a reduced entitlement to buy another home with a VA direct or VA-backed loan if you meet at least one of these requirements.
At least one of these must be true:
1) You’ve sold the home you bought with the prior loan and have paid that loan in full, or a qualified veteran-transferee agrees to assume your loan and substitute their entitlement for the same amount of entitlement you used originally.
2) You’ve repaid your prior loan in full but haven’t sold the home you bought with that loan (you can only do this one time).
To request an entitlement restoration, fill out a
Request for a Certificate of Eligibility (VA Form 26-1880) and send it to the VA regional loan center for your state.
How many VA loans can I have at once?
The VA does not limit how may VA home loans you can have during your lifetime. However, it is only possible to have two VA loans at one, and both loans must be on your primary residence. Having two primary residences typically applies to active service personnel who have Permanent Change of Station (PCS) orders. In these cases, service members may keep their current home and turn it into a rental property, then purchase a new home in the new location, using a VA loan.
Are VA loans worth it?
If you are a veteran or active service member, a VA loan can save you money though a lower interest rate and reduced closing costs. Speak to a mortgage professional to learn more about VA loan benefits and applying for a VA loan.
How long does VA approval take?
It may take 40 to 60 days to approve a VA home loan.
Is it hard to get a VA loan?
No, getting a VA home loan is easy, as long as you meet the VA loan requirements for eligibility, as well as the lender’s
credit score and income requirements.
Do VA loans have PMI?
VA home loans don’t include PMI but do include a similar funding fee. The fee is a one-time payment that the veteran, service member, or survivor pays. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. The VA funding fee may be waived for
veterans who meet certain requirements.
Who pays for closing costs on a VA loan?
Both the buyer and seller will pay closing costs that are unique to their part of the transaction. However, the seller may offer to pay certain closing costs as an incentive.
Why savvy consumers choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including car loans, mortgages, Home Equity Loans, HELOCs, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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