VA Loans
What Is A VA Loan?
VA loans are a great benefit for eligible service members, veterans, and their surviving spouses. It allows you to qualify for a low-cost mortgage when you're looking to purchase or refinance, even if your credit isn't perfect.
If you currently serve in the military or are a veteran, you’re probably eligible for a VA loan. Here is what you need to know about these special government-backed loans.
VA loans are a type of military loan that mortgage lenders issue to qualified veterans, active service members, and spouses. VA loans come with the government's backing through the Department of Veterans Affairs (VA). The VA offers specific guarantees to private lenders on loans to qualified veterans, active service members, and surviving spouses. Because of these guarantees, lenders will issue loans to candidates that could be considered risky.
How Do VA Loans Work?
The department of VA does not issue VA loans, but it does determine who qualifies for one and which lenders issue VA loans. There are several types of VA loans that pose less of a risk to lenders because of the backing by a government agency.
VA loans are considered non-conventional loans because of their easier credit requirements. They offer many advantages over conventional loans, including lower interest rates, more lenient borrowing requirements, and no down payment due at closing.
Who Qualifies For A VA Loan?
For those who are eligible, VA loans are attractive because they don’t require a down payment. They also have lower interest rates than many other types of mortgage loans you can get for similar terms. They don’t have monthly mortgage insurance.
Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage programs.
Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:
Served 181 days of active service during peacetime.
Served 90 consecutive days of active service during wartime.
Served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32, with at least 30 of those days being consecutive.
Are the spouse of a service member who lost their lives in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions.
What Is A Certificate Of Eligibility (COE)?
A COE is a document that shows your mortgage lender that you’re eligible for a VA loan. To get a COE, you need to demonstrate proof of service. The proof you need to submit varies based on whether you’re an active-duty military member, a veteran, a surviving spouse, etc.
If you are eligible, Coldesina Capital can help you secure your COE.
Documents You Will Need
Veterans
Veterans need to submit DD Form 214. DD Form 214 is a certificate that verifies your military discharge. You can request your DD Form 214 online using the eVetRecs filing system.
Current National Guard Or Reserve Member
Current National Guard or Reserve members also need a statement of service. The requirements for your statement are the same as they are for active service members.
Discharged Member of The Selected Reserve
if you're a discharged member of the Selected Reserve, you must have a copy of your annual Retirement Points Statement. You also need proof of honorable service and discharge.
Active-Duty Service Members
You will need a statement of service signed by your personnel officer or an adjunct or unit commander if you're an active-duty service member. The statement of service must include your full legal name, Social Security number, and date of birth.
It must document the date you entered the service, information on any breaks or discharges you took from service, and the name of the commander providing the information. Ask your superior for a statement of service before you apply for your COE.
Discharged Member Of The National Guard
Discharged members of the National Guard need to have NGB Form 22, Report of Separation, and Record of Service for each period of National Guard service. You must also have NGB Form 23, Retirement Points Accounting, and proof of the character of service.
National Guard units belong to individual states, so there is no central record archive. Contact the National Guard Adjutant General’s Office in the state where you served and request your NGB Form 22 and 23 to get your COE.
Surviving Spouses
Surviving spouses not receiving dependency benefits can get a COE. All you will need is your spouse's DD Form 214, your marriage license, and your spouse's death certificate. You also need to print and complete VA form 21P-534-ARE, available on the VA benefits website.
Surviving spouses who receive dependency benefits need to print and complete VA form 26-1817. You can download the form for free From the VA benefits website.
Once you have all the evidence, you have a few options to apply for your COE. You can apply online through the VA’s eBenefits website. You can also mail your documents and a completed VA Form 26-1880.
Other VA Loan Eligibility Requirements
Once you have verified that you meet the service requirements for a VA loan, you need to assess your income, assets, credit, and the property you want to buy.
Property Type
VA loans can also be used on condos and manufactured homes. However, not all lenders will finance loans for these property types. If you are getting your loan with Coldesina Capital, you can get a VA loan for a condo, but not for a manufactured home.
The property you buy must be your primary residence within 60 days of purchase. You cannot use a VA loan for a vacation or investment property. However, you can use it to buy a one-to-four family home if the eligible member uses it as a primary residence.
Credit Score
The VA doesn’t require a specific minimum credit score for VA loans, so the credit requirement varies by lender. The minimum median credit score for a VA loan from Coldesina Capital is 580.
Income
Your lender will evaluate your debt-to-income ratio (DTI) when considering your ability to pay back the loan. Your DTI represents how much of your monthly income goes toward paying back debt. Importantly, the VA does not set limits on your DTI, although some lenders might.
VA Loan Limit
The VA does not limit how much you can borrow, but there is a cap on the VA’s guarantee. That is the amount of money VA will cover if you default on your loan. According to the VA, the loan limit for a no-down-payment VA loan is $548,250 in most counties.
Certain high-cost areas have higher limits. If you need a loan higher than that amount, you may be able to look into a VA jumbo loan, which doesn’t require a down payment and may offer a lower rate than regular jumbo loans.
Down Payment and Assets
VA loans are one of the few loan options that don’t require a down payment. Your lender may have specific requirements for a no-down-payment VA loan.
For example, if you are putting down less than 10%, a lender may require that you have a higher credit score. The requirement to purchase a home with a VA loan through Coldesina Capital with no down payment is still a median of 580.
It is important to keep in mind that “no down payment” does not mean “zero cost.” Here are some other costs, akin to closing costs due at a conventional mortgage closing, to be prepared for, even if you are putting 0% down:
Funding Fee
Most people who get a VA loan are required to pay a funding fee, which covers the cost to taxpayers. The funding fee ranges from 1.25% to 3.3% (2.3% – 3.6% beginning January 1, 2020) of your loan amount.
The cost of the fee is determined by your type of service, the size of your down payment, and whether it is the first time you are getting a VA loan. It will also consider whether you are buying a property or refinancing it. Surviving spouses, veterans who receive disability, and Purple Heart recipients serving in an active-duty capacity are exempted from funding fees.
Do not worry, though. In most cases, if you do not have the money upfront, it can be added to the loan amount in many cases.
Reserve Funds
Most loans require you to have additional money in the bank that you’re not using for upfront costs. This ensures that you will be able to make payments once your loan closes. The amount of leftover funds you will need is determined by the cost of your mortgage payment, including principal, interest, taxes, and insurance. Although not always required, it is a good idea to show reserves equal to 2 months’ worth of mortgage payments.
How to Apply For A VA Loan: 6 Steps
Applying for a VA loan is a lot like applying for any other mortgage in many respects. Take the below-mentioned 6 steps into consideration when applying.
1. Secure a Certificate Of Eligibility (COE)
You will need this to be eligible for your VA loan. You must provide proof of your military service based on your status.
Coldesina Capital can help you verify your eligibility and get your certificate. VA-approved lenders, like Coldesina Capital, can help you get your certificate quickly with proof of service.
Tell your lender you need your certificate of eligibility early in the process so they can help you get it.
2. Get Preapproved
When buying a home, get preapproved early on. The approval will give you a baseline for determining how much you can afford. In addition, when you make an offer on the house, you will find sellers tend to take offers more seriously if you attach a letter of preapproval.
3. Shop for A House
Finding a house with a VA loan is like finding a house with any other loan option. Whatever property you buy must meet the VA's Minimum Property Requirements or MPRs. MPRs ensure the home is safe, structurally sound, and sanitary. These requirements vary according to known risks in an area.
A VA appraiser inspects the home to ensure it meets the MPRs. If any MPRs are not met, repairs must be made, either at the seller’s or buyer’s expense, before the loan can close.
4. Make a Purchase Offer
Once you find a home, you like in your price range, put in an offer to buy the home. The seller may accept your offer, reject the offer, or counter offer. Once you and the seller agree on a price, a real estate agent or attorney can help draw up a sales contract.
5. Undergo VA Appraisal and Underwriting
Underwriters from your lender assess your finances and make sure you qualify for a VA loan. The VA will also require an appraisal before they approve the loan. VA appraisals are stricter than conventional loans. During a VA appraisal, the appraiser will check that the home meets the VA's MPRs and is sanitary, structurally sound, and move-in ready with minimal repairs.
6. Close on Your New Home
Once the VA appraiser says your new home is safe and sound, it’s time for you to sign on your new home, get your loan and receive the keys to your new property.