VA home loans were created as part of the Servicemen’s Readjustment Act of 1944, which was meant to help Veterans returning home from fighting in World War 2. Since then, VA home loans have helped more than 22 million Veterans become homeowners. This is due to these loans having gone through several upgrades since their foundation, resulting in the best benefits out of any Government home loan.
VA Home Loan Benefits
The biggest reason why VA home loans are considered the best Government guaranteed home loans available is that they have some fantastic benefits. These include:
- $0 Down Payment Requirement.
- Low-Interest Rates.
- Lower Monthly Payments.
- No Prepayment Penalties.
- No Mortgage Insurance Options.
In addition to these benefits, VA home loans can be taken out in either a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage. Additionally, these loans can also finance the funding fee itself, which reduces the out of pocket costs for the home buyer.
A new benefit to come from these loans is the removal of loan limits. This means that people who take out a VA loan can purchase property anywhere in the country without worrying about adhering to loan limits set up by the VA. However, Government-sponsored VA lenders are still required to make their monthly payments. Loan limits have also been removed for Native American Veterans that want to purchase or build property on Federal Trust Land.
However, not all loan limits have been removed; borrowers with more than one active home loan are still required to adhere to the county’s loan limits. Loan limits have been set up by individual lenders basing these limits on how much they are willing to lend out for no money down. One of these lenders is VA Home Loan Centers, currently offering a loan limit of $5 million for qualified applicants.
VA Home Loan Eligibility Requirements
Applying for a VA home loan requires that the applicant is either a Veteran, an Active Duty Service Member, or an eligible spouse. In addition to these requirements, the VA also requires that the applicant meet additional service, property, income, and credit score requirements. These requirements are:
- Service Requirements
The applicant must have served at least 90 consecutive days in active duty during wartime or 181 consecutive days during peacetime. Members of the National Guard and military reserves are required to have served for at least six years within their corresponding military branch. Also, the VA allows the surviving spouses of deceased veterans to qualify for the home loan. The only requirement is that they lost their spouse while in active duty or due to a service-related disability.
- Property Requirements
Several types of properties qualify for a VA home loan; however, they must all meet basic eligibility requirements set up by the VA. These types of properties and eligibility requirements include:
- Single Family Homes that do not have any health or safety hazards at the time of purchase.
- Multi-Family Dwellings (up to a fourplex) that does not have any health or safety hazards. Additionally, the VA requires that the applicant occupy at least one of the units.
- Condos and Townhomes can also be purchased with a VA loan. However, the condo needs to be approved by the VA, although if the condo isn’t yet approved, it is still possible to <a href=”https://www.vahomeloancenters.org/instructions-to-submit-condo-pud-or-cic-for-expedited-military-loan-approval/”>get it approved</a>.
- Manufactured homes and mobile homes, but must be doublewides and be set on a permanent foundation.
Some properties cannot be bought with a VA loan, including homes located in flood hazard zones without flood insurance, and properties located in Airport Noise Zones 3. Additionally, other properties are not eligible for the VA, including cooperatives, timeshares, and condos not approved by the VA.
- Income Requirements
An applicant’s income is also taken into account when they apply for a VA home loan. Not only does the income have to be enough to pay for the mortgage, but it must also come from an approved source. This includes income from sources like:
- A full-time job.
- Social security.
- VA disability.
- Retirement or pension.
- A part-time job of at least two years.
- Self-employment for at least two years.
- 1099 for at least two years.
- Seasonal job for at least two years.
- Child support with a three-year continuance.
- Alimony with a three-year continuance.
- Rental income reported to the IRS.
However, there are other forms of income that are not eligible, like unemployment, GI Bill Basic Housing Allowance (BHA), and worker’s compensation.
- Credit Score Requirements
Currently, VA home loans have no set credit score requirement, although some lenders require a score of at least 640. Lenders will accept even lower credit scores, and they will make their determinations based on the applicant’s late payment history, and possible past collections. Some lenders even offer advice on how to <a href=”https://www.vahomeloancenters.org/how-to-get-a-va-home-loan-with-bad-credit/”>qualify for a VA loan with bad credit</a>.
VA Refinancing Options
The VA doesn’t only offer loans to assist applicants in the purchasing of a home. They can also refinance an existing property through its two refinancing loans, the Interest Rate Reduction Loan and the Cash-Out Refinance Loans.
- Interest Rate Reduction Loans (IRRRL)
Often referred to as Streamlined loans, these loans are meant to refinance an existing loan on a property by replacing an existing loan with a new lower interest loan. This refinancing loan finance both funding fees and closing costs, which basically lowers out of pocket expenses for the borrower. This loan can also finance up to 100% of the current loan amount. However, this loan cannot be used for a Cash-Out on equity, which can be done with the other refinancing loan offered by the VA.
- Cash-Out Refinancing Loans
This loan, unlike the IRRRL, allows applicants to cash out on home equity regardless of whether the original loan was a conventional or a VA loan. In fact, this loan can be used for any property, even if it was bought with an FHA, USDA, VA, or conventional loan. Cashed out money can be used to pay off debt, finance home improvements, or pay for a financial emergency.
Just like IRRR Loans, these refinancing loans be up to 100% of the value of the current home, and the money can be used to finance the funding fee and the closing costs.
Whether you’re using a VA home loan to purchase a new home or refinance an existing one, VA home loans offer some of the best benefits out of any loan. It does not matter if the loan is insured by the Government or if it’s a conventional loan.
Phil Georgiades is the CLS for VA Home Loan Centers, a Government-sponsored brokerage specializing in the administration of VA loans. He has more than 22 years of experience working in real estate. To apply for a VA loan: