VA loans are available exclusively to veterans and active-duty personnel and are guaranteed by the U.S. Department of Veteran Affairs. They offer low rates and flexible qualifying requirements.
Benefits of VA Loans
- 0% down payment requirement for eligible veterans (must have full entitlement)
- Competitively low interest rates
- No mortgage insurance
- Less stringent qualifying guidelines
- Active-duty member of the military or veteran meeting minimum length-of-service requirements; or
- Surviving spouse of a military service member who died while on active duty
- Minimum credit score of 580
- Primary residences only
What is a VA loan?
VA loans are part of a government loan program specifically designed for veterans and surviving spouses. The U.S. Department of Veteran Affairs (VA) guarantees these loans, making them safer from an investor’s perspective and contributing to advantageous loan terms such as a 0% down payment and more flexible underwriting guidelines.
VA Loan Limits
As of 2020, county loan limits do not apply to VA financing if you have full entitlement. Instead, your credit score will determine the maximum allowable loan amount.
Entitlement guarantees that the VA will pay your lender the lesser of up to $36,000 or 25% of your loan amount if you default. Your Certificate of Eligibility (COE) is a document from the Department of Veterans Affairs that confirms your eligibility to obtain a VA home loan and will indicate the amount of entitlement you have available.
If you have never used your VA loan entitlement to purchase a home or have fully repaid a prior VA loan (otherwise known as “restoring” your entitlement), your COE will say that the basic entitlement is $36,000.
With full entitlement ($36,000), you will not be restricted by loan limits and can pursue a loan up to $3M with 0% down with a credit score of at least 720.
If you have used a portion of your entitlement, a down payment may be required. Calculating the figures can get tricky – our mortgage experts can help determine exactly what is needed!
Down Payment Requirements for VA Loans
As mentioned, with full entitlement, a down payment is not required for loans up to $3M.
One exception to this rule is for unmarried co-borrowers, as the VA only guarantees loans for veterans & their spouses. If there are unmarried co-borrowers, the VA will only guarantee the veteran’s half of 25% of the loan amount (or 12.5%). This means that the non-veteran will need to provide the other half, and the loan will need a minimum 12.5% down payment.
Nuances of VA Loans
Condominiums must be approved ahead of time, which can make purchasing a condo with VA financing tricky.
Any spousal liabilities appearing on the credit report (think car loans, student loans, credit cards, etc.) must be incorporated into the qualification for non-borrowing spouses, even if they will not be on the loan.
Pros & Cons of VA Loans
Lenient Credit Guidelines
VA financing is very lenient when it comes to credit scores. VA loans have a minimum credit score requirement of just 580. You can also qualify with a recent credit event such as a bankruptcy, foreclosure, or short sale.
Low Monthly Payments
Interest rates for VA loans tend to be lower than rates for Conventional and FHA loans, especially if your credit score is on the lower side. There is also no monthly mortgage insurance required, which can help keep monthly payments low when compared to a Conventional or FHA loan.
0% Down Payment
VA financing allows you to obtain a loan with 0% down, which means you will only need to pay for closing costs. To keep out-of-pocket costs even lower, you can opt for a higher rate and take a large lender credit to help offset closing costs, instead of paying for these out of pocket.
Longer Closing Timeline
VA loans have longer closing timelines as the loan and appraisal must be submitted to the VA for approval. This puts an average close of escrow timeline for VA loans around 30 days.
Primary Residences Only
VA loans can only be used to purchase a primary residence. This means you will need to meet conventional financing guidelines regarding credit score, down payment, and debt-to-income ratios if you are hoping to purchase a second home or investment property.
Most clients opt to finance the funding fee into the loan amount rather than pay for it upfront, which increases the monthly payment amount. The funding fee is higher for subsequent uses of the VA loan program, so this will increase if you’ve had a VA loan in the past.
Key Differences of VA Loans vs. Conventional and FHA Loans
Longer Closing Timeline
VA loans have longer average closing timelines than Conventional and FHA loans because VA loan appraisals must be submitted to the VA for review and approval. The closing timeline for VA loans is about 30-days, compared to the quick 14-day closing timelines JVM offers for Conventional and FHA loans.
Lower Interest Rates
Interest rates for VA financing tend to be lower than mortgage rates for Conventional and FHA financing with less than 20% down.
0% Down Payment
VA loans allow eligible borrowers to utilize 0% down payment financing, with no mortgage insurance requirement. FHA and Conventional loans will require at least 3-5% down.
VA loans have a funding fee, which is traditionally financed into the loan amount (like upfront mortgage insurance with FHA financing). This fee ranges from 1.4-3.6% of the loan amount and varies based on the down payment and whether you’ve had a VA loan in the past. Eligible veterans can have their funding fee waived – your Certificate of Eligibility will let you know whether the funding fee is required.
No Loan Limit
There is no restriction on loan amounts like FHA or Conventional loans that must stay within the county loan limits. This allows veterans to access higher loan amounts that would typically only be obtainable through Jumbo or Combination financing.
Certificate of Eligibility for VA Loans
A Certificate of Eligibility is awarded to eligible active-duty military members and veterans. You can obtain this document directly from the VA or your lender can access/order the certificate from the VA’s website. The document will contain relevant information needed to determine your eligibility for a VA loan.
Below are the main details lenders need from the certificate of eligibility:
- Basic entitlement amount
- Entitlement code
- Funding fee exemption or subsequent use
- Prior VA loans
- Branch of service
- Disability amount collected
If the certificate has not yet been created, you or your lender can create an order on the VA’s website using your personal information and relevant information found on a DD-214.
If you have previously used your entitlement and then sold your property, refinanced into a different program, or paid off your loan, you can apply for a restoration of entitlement. This is also done through the VA’s website; some evidence of your prior loan being closed is all that may be needed.
View mortgage rates for July 4, 2022
VA Loan Eligibility Requirements
- 90 days of active duty during wartime or 181 days of active duty during peacetime
- Veteran must have been discharged or released on conditions other than dishonorable
- Members of the Reserves or National Guard may be eligible upon 6 years of service in the Selected Reserve
- Un-remarried surviving spouses of veterans who died because of service-related injuries
- 580 minimum credit score
- Property must be owner-occupied
- Condominium projects must be actively approved by the VA
- Must meet the required residual income
Is a VA Loan Right for You?
You must meet the VA qualification requirements to obtain a VA loan. While a VA loan is typically the best option for most veterans, there is no one-size-fits-all for VA mortgage financing. The best way to determine whether a VA loan makes the most sense for you is to talk to one of our mortgage experts at JVM Lending. Our experts can walk you through monthly payment scenarios, give you current interest rates, and discuss any other questions or concerns you might have.
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