Everything You Need to Know About VA Loans

Nov 25, 2019

Looking to take out a VA loan? Then look no further.

Applying for any kind of mortgage can be very complicated without the added stress of VA loan stipulations.

In actuality, this can be a smooth process as long as you know the correct facts and can find someone who can lend to you and help you through the process.

For those that are eligible for VA loans, this can often be one way for them to finally get ownership of a home.

What Exactly Is a VA Loan?

VA loans are mortgages given by a private lender but are also backed in part by the Department of Veterans Affairs. Those that are eligible for borrowing can only use loans for a primary residence.

The advantages of a VA mortgage are that they are easier to acquire financing for and there is also no need for a downpayment. The income and credit requirements are also found to be more lenient than standard mortgages.

If you have a certificate of eligibility or alternatively a COE (certificate of eligibility), you will be able to get a VA loan.

What Are VAT Entitlements and Why Do They Matter?

The VA guarantees some of your mortgage in the form of entitlement. The range of entitlements are limited, and constitute a bonus in basic entitlement.

The latter comes to just $36,000 or 25% of your whole mortgage in the case you default.

Normally, you’ll be loaned four times that amount by lenders. You do not have to use the whole entitlement, however.

Because of the value of homes going higher and higher, many homebuyers have to deal with properties in excess of $140,000. This means the bonus entitlement that you are eligible for is often necessary. This is also known as a second-tier entitlement.

The amount you get for your bonus entitlement is dictated by the federal housing finance agency. Limits for this in 2019 or $484,350. In areas that were more expensive, this amount went up to 150% of the number. Higher cost states also allow for a bigger entitlement.

What Do You Need To Be Eligible For VA Loans?

In general, most military reservists and veterans can apply to get a VA loan. Spouses of those in the military who were killed on duty can also make a bid for a VA loan.

Those in the military currently can qualify after having served six months of service. Reservists and those in the National Guard have to wait a while—six years—before they can apply for VA loan. There are also some other conditions under which you may be eligible. These are as follows:

  • 90 consecutive days served of active service during wartime
  • 181 days served of active service during peacetime
  • Active member of Reserves or National Guard for 6 or more years
  • Wife/husband of a service member that died in duty or because of service-related disabilities

It’s important to note that getting a COE doesn’t mean veterans qualify for a mortgage—these are two separate processes.

Once you qualify for a COE, you can shop for a home loan.

VA Loan Funding Fees

VA loans generally cost less than other low downpayment mortgages. There is still a one-time funding fee, however, that can depend on the category of military you’re from and how much was down paid originally.

This fee is used to offset any costs for taxpayers because of the lack of private mortgage insurance. Someone in the armed forces borrowing a VA loan, while not putting any money down, would have to put up 2.15% of the total loan.

This fee, however, can be reduced to 1.25% if said borrower makes a 10% down payment or more.

Can Those Already Borrowing Lower Their Interest?

The interest rate reduction refinance loan allows those already with a VA loan to get an interest rate that is significantly lower.

However, this loan means borrowers have to refinance an already active loan into another VA loan. The advantage of this is that underwriting appraisal packages are not needed.

You also will not have to pay any money out of your own pocket for this refinance loan. The structure is so that the fees are moving to the new loan and any interest is adjusted to cover costs required by lenders.

What Are the Requirements for the Loan Occupancy?

These loans will need borrowers to make their home a primary residence within 60 days of buying. If there are special circumstances, however, exceptions are able to be made lenders, as they often evaluate occupancy scenarios depending on the case.

For those that are still within active duty, spouses can take up residency in the case that the person serving duty cannot. In some cases, a minor is also able to satisfy these occupancy requirements. The VA loan cannot be used to invest or purchase second homes.

How to Get a Certificate of Eligibility for a VA Loan

Before you can get your hands on the VA loan, it is a must that you are eligible. To do this, a certificate of eligibility is required. The following criteria need to be met in order to gain a certificate:

  • 90 consecutive days served of active service during wartime
  • 181 days served of active service during peacetime
  • Active member of Reserves or National Guard for 6 or more years
  • Wife/husband of a service member that died in duty or because of service-related disabilities

There are three different ways you can apply for your COE. You can do so by getting your COE from your lender, which can be very quick or apply for a COE at VA.gov, or mail in your application.

Getting Your VA Loan

Once you have your COE, it is relatively easy to get VA loans.

The only thing you have to do is find a reputable lender. You can do so by searching on their website or getting recommendations from friends for reviews.

Need some help finding the right mortgage? Get in touch for a free quote!

108 Comments

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