What Is a VA Loan?

A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). It’s specifically designed to help veterans, active-duty service members, and some surviving spouses become homeowners.

Key Benefits of a VA Loan:

• No Down Payment: One of the most appealing benefits, making homeownership more accessible.
• Competitive Interest Rates: Often lower than conventional loan rates.
• No Private Mortgage Insurance (PMI): Reducing your monthly payment.
• Flexible Credit Requirements: Making it easier to qualify for those with less-than-perfect credit.

How Do You Qualify for a VA Loan?

Eligibility for a VA loan depends on your service history and discharge status.

Basic Eligibility Requirements:

• Veterans and Active-Duty Service Members: Must have served at least 90 consecutive days during wartime or 181 days during peacetime.
• National Guard and Reserves: Require six years of service or 90 days of active service under certain conditions.
• Surviving Spouses: May qualify if their spouse died in service or from a service-connected disability.

Steps to Obtain a Certificate of Eligibility (COE):

• Online via eBenefits:
  • The quickest way to apply is through the VA’s eBenefits portal.

• Through a Lender:

  • Many VA-approved lenders can help you secure your COE using the VA’s online system.

• By Mail:

  • Submit VA Form 26-1880, the Request for Certificate of Eligibility, through the mail. Keep in mind, this method takes the longest.

Documents Required for a COE:

• For Veterans:

  • Provide a copy of your DD Form 214, which outlines your military service and discharge status.

• For Active-Duty Service Members:

  • A signed statement of service from your commanding officer or personnel office is needed.

• For National Guard/Reserve Members:

  • Submit point statements and proof of service if you’ve never been activated.

• For Surviving Spouses:

  • You may need to provide a copy of the Veteran’s death certificate and your marriage license.

Can You Use a VA Loan More Than Once?

Yes, VA loans are reusable. You can use your VA loan benefit multiple times, provided you meet the eligibility requirements and any remaining entitlement covers the loan amount.

Examples of Reusing VA Loans:

1. Selling Your Home: Pay off the existing VA loan and reuse the entitlement for a new purchase.
2. Restoration of Entitlement: Apply to restore entitlement after paying off a previous VA loan.
3. Partial Entitlement: Use any remaining entitlement if you have a previous loan still active.

What Are VA Loan Limits?

While VA loans no longer have official limits for borrowers with full entitlement, loan limits apply if you have reduced entitlement.

Note: If your loan exceeds these limits and you lack full entitlement, you’ll need to make a down payment.

How Much Can You Borrow with a VA Loan?

The amount you can borrow depends on several factors, including your income, credit score, and existing debts. While the VA doesn’t cap the loan amount, lenders will assess your ability to repay based on:

• Debt-to-Income Ratio (DTI): VA guidelines suggest a DTI of 41% or less, though exceptions are possible.
• Residual Income: Lenders check your leftover income after monthly expenses to ensure financial stability.

Do VA Loans Have Closing Costs?

Yes, VA loans have closing costs, but they are typically lower than those for conventional loans.

Typical Closing Costs Include:

• VA Funding Fee: A one-time fee based on your loan amount and military status.
• Appraisal Fees: Usually between $500–$800.
• Title and Escrow Fees: Vary by region.
• Discount Points: Optional, to lower your interest rate.

Tip: Sellers or lenders can cover some closing costs through VA loan concessions.

Can You Use a VA Loan for a Second Home or Investment Property?

VA loans are intended for primary residences, so they can’t be used to purchase a second home or investment property. However, you can buy a multi-unit property (up to 4 units) if you live in one of the units.

Scenarios:

• Yes: Purchasing a duplex and living in one unit while renting the other.
• No: Buying a vacation home or rental property outright.

Do VA Loans Require a Down Payment?

In most cases, VA loans don’t require a down payment. However, you might need one if:

• You Lack Full Entitlement: Partial entitlement may require a down payment.
• The Loan Exceeds County Limits: High-cost homes may necessitate one.

Common Misconceptions About VA Loans

Myth: VA Loans Take Too Long to Process

Reality: Modern technology has streamlined the process. Many VA loans close as quickly as conventional loans.

“VA loans are no longer the drawn-out process they were years ago. The VA has done an excellent job improving efficiency,” says John Michaels, a real estate advisor with 15 years of experience.

Myth: You Can Only Use a VA Loan Once

Reality: You can use your VA loan benefit multiple times, provided eligibility requirements are met.

What If You Default on a VA Loan?

If you default on a VA loan, the VA works with your lender to explore options like repayment plans, forbearance, or loan modifications to avoid foreclosure. However, defaulting could result in:

• Credit Score Impact: Negative marks on your credit.
• Loss of Entitlement: Future VA loan eligibility may be affected.

Tip: Always communicate with your lender if you’re struggling with payments.

VA Loans vs. Conventional Loans

Additional FAQs

What Credit Score Do You Need for a VA Loan?
The VA doesn’t set a minimum credit score, but most lenders require at least 620. Some flexible lenders may approve lower scores based on other financial strengths.

Can You Refinance a VA Loan?
Yes, VA loans offer two refinance options:

• Interest Rate Reduction Refinance Loan (IRRRL): Streamlines refinancing to a lower rate.
• Cash-Out Refinance: Converts home equity into cash.

Are VA Loans Assumable?
Yes, VA loans are assumable, meaning another eligible borrower can take over your loan with your lender’s approval.

How Long Does It Take to Get a VA Loan?
VA loans typically close in 30–45 days, comparable to conventional loans.