VA Mortgages: Rates, Requirements and How to Apply

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Active U.S. Military service members and their families have access to a wide range of benefits, and VA home loans are one of the best. VA loans make homeownership more affordable and accessible for eligible Veterans, service members, and their qualifying spouses. 

Because they’re backed by the U.S. government, VA mortgages can mean an easier approval process and better loan rates than their conventional counterparts. However, there are specific qualifications involved.

If you’re a Veteran — or a surviving spouse of one — it’s worth exploring the details about VA mortgage rates, terms, and the application process.

Whether you’re buying a new home or refinancing your current mortgage, read on to see if a VA loan is a good option for you.

What Is the VA Loan and How Does It Work?

A VA loan is a government-backed mortgage available to eligible Veterans, active-duty service members and surviving spouses. These loans can be ideal for borrowers with lower credit scores.

Other benefits include no down payment and no mortgage insurance.

While the Department of Veterans Affairs (VA) backs the loan, it isn’t the lender. You’ll still borrow for your home purchase from a bank or mortgage lender — as long as they’re approved by the VA.

However, the VA guarantees a portion of the loan, enabling lenders to offer more favorable loan rates, terms and credit requirements than what’s typically available for a conventional loan.

Who Can Get a VA Loan?

VA loans make it easier for Veterans and active service members to finance a home purchase. As long as you’ve met the minimum service requirements, you’re eligible for a VA home loan.

Keep in mind, though, that you’ll also need to meet your lender’s credit and income requirements for loan approval.

VA Loan Service Requirements

To qualify for a VA mortgage, you generally must have served for at least 90 days of active duty in wartime or 181 continuous days in peacetime. If you served in the National Guard or the Reserves, you must have fulfilled 90 days of active duty.

Veterans who were disqualified due to a service-related disability may qualify with less than 90 days of service. 

These benefits also extend to spouses in some cases. Those married to active service members who are prisoners of war or missing in action qualify for VA loans.

Spouses of Veterans who died in the line of duty or from a service-connected disability are also eligible, as long as they didn’t remarry before the age of 57 or before Dec. 16, 2003. In some cases, spouses of Veterans who died from a non-service-related disability may also be eligible.

Some civilian employees of the U.S. Public Health Service and the National Oceanic and Atmospheric Administration may also qualify for VA loans. 

Certificate of Eligibility

When applying for a VA-backed loan, you will need a VA loan Certificate of Eligibility (COE). Your COE includes your remaining entitlement, which determines how much you can borrow.

The documentation required for your COE can vary depending on your status, but your VA-approved lender will be able to help guide you through that process. 

VA Entitlement

Your VA loan entitlement affects how much you can borrow. If you’re a first-time VA loan borrower, or paid off your previous VA loan and sold the property you financed with it, you should have full entitlement.

This means there is no maximum amount on your VA loan benefit. Keep in mind that your lender may still set a limit based on your financial profile.

If you still own your VA-financed home or have not repaid your VA loan in full, you have what’s called “second-tier entitlement.” In that case, the VA will set a limit on how much it will guarantee for your next loan, impacting how much you can borrow without a down payment.

VA Mortgages vs. Conventional Mortgages

VA loans offer several key benefits over conventional mortgages:

Types of VA Loans

There are four types of VA-backed mortgages available to qualifying Veterans, active-duty service members and surviving spouses.

VA Purchase Loan

This is the traditional VA loan, which you use to finance a purchase of your primary residence. It can be used to purchase an existing home, or even finance the construction of a new home, though that can come with some additional hurdles.

These loans are available with no down payment and no mortgage insurance, but exact terms vary by lender and are based on your credit profile.

VA Interest Rate Reduction Loan (IRRRL)

The VA IRRRL is one of two refinancing options available to eligible VA borrowers, and it’s a great option for a streamlined way to reduce your monthly payment. You must refinance an existing VA loan, and the new rate must be lower than your current VA loan to qualify.

Also note that you may have specific limits on how long it takes to recoup the costs of refinancing. In many cases, you can qualify for a VA IRRRL without income verification or appraisal.

VA Cash-Out Refinance

Unlike the VA IRRRL, VA Cash-Out Refinance loans are available to qualifying VA borrowers who don’t have an existing VA loan — as well as those who do. You can use this loan to cash out your current home equity or to refinance into better terms than your existing loan.

Eligibility criteria are the same as for a VA purchase loan.

VA Energy Efficient Mortgage (EEM)

A VA EEEM is a secondary mortgage that you can use with another VA loan. It’s specifically designed to help you make energy-efficient improvements to your home, such as adding solar panels, upgrading insulation or weatherproofing windows.

If you qualify for a VA loan, you can typically get up to $6,000 extra for these improvements with an EEM.

Pros and Cons of VA Loans

VA loans offer many benefits to qualifying borrowers, including lower rates, no PMI, and no down payment minimums. In general, these loans make it easier for Veterans, active-duty service members and their surviving spouses to finance a home purchase.

They also offer flexible refinancing options. If you’re eligible for a VA loan and have minimal cash on hand or a low credit score, a VA loan may be a great option for you. 

However, VA mortgages do have some downsides. Although you won’t pay PMI, VA loans do include a funding fee, which ranges between 1.4% and 3.6% of your total loan amount, depending on how much you put down and whether this is your first VA loan.

It’s also worth pausing before you buy a home with no down payment, as your loan could exceed your home’s market value.

VA loans are also more limited in terms of the types of properties you can finance. You can only use them to purchase your primary residence, so VA loans are not a good choice for investment properties.

How to Get a VA Loan

Applying and qualifying for a VA loan requires many of the same steps involved with securing a conventional loan, but the process can differ, as indicated below:

  1. Get your Certificate of Eligibility: Request a copy of your COE through your lender, or you can apply yourself, either online or by mail. More information on the documentation required based on your service status can be found here
  2. Apply for preapproval with a VA-approved lender: As with any home purchase, it’s best to get preapproved before you start shopping for your new home. In this case, be sure you apply with a lender that specializes in VA financing.
  3. Shop for a home and make an offer: Once you find a VA-approved property that’s right for you, you’re ready to make an offer and negotiate a contract with the seller.
  4. Go through appraisal and underwriting: A VA appraisal is different from a conventional home appraisal, and your property will be subject to more scrutiny. Once you pass this stage, you can get your home inspection and finish the rest of the underwriting process.
  5. Get final approval and close on your home: Once everything is squared away, the rest of the closing process works like it would for a conventional loan. Sign your paperwork, get your keys, and start your new life in your new home!

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