Thank you for your service! The U.S. Department of Veterans Affairs (VA) thanks you, too, by extending your benefits to include home loans with excellent terms.
The VA backs home loans for veterans, military service members, and their families through lending institutions approved to work with the VA. Borrowers who meet service eligibility requirements can qualify for VA loans, which have better terms than most other mortgages – including a low or zero down-payment option. The amount you can borrow is limited to the cost of similar homes in your area as well as meeting personal financial requirements set by your lender.
On this page we’ll break down VA home loan eligibility requirements and limits, and provide information to help you move forward.
What is a VA loan?
When the VA agrees to offer you a home loan, it means they guarantee a portion of your mortgage that you get through a private lender. VA loans are backed by the government for up to 25 percent of the loan value, which takes away a lot of the risk to your lender. That opens up great loan terms for you! With the benefits of this type of loan, you will have more financial flexibility in your home-buying choices.
Some advantages of a VA home loan include:
- Low or $0 down-payment requirement
- No private mortgage insurance (PMI)
- Limited closing costs
- Competitively low interest rates
- No penalty or fees for paying off your loan early
You have multiple options for VA home loans such as purchase loans or refinance loans. The loan program never expires for those who are eligible – it is a lifetime benefit to service members, veterans, and their surviving spouses.
What are the qualifications for a VA loan in 2021 and how do I apply?
Certain service requirements need to be met to be eligible for VA loans.
Service requirements for veterans and active-duty service members are based on when you served and the amount of time you served. For example, the minimum requirement for days served is shorter during war time (usually 90 days) and twice that during peace time. Reasons for discharge also impact eligibility.
National Guard and Reserve members also can qualify for a VA home loan. You meet the minimum active-duty service requirement if:
- You served 90 days of active-duty service between 1990 and the present, or
- You served six creditable years in the Selected Reserve or National Guard and were honorably discharged, retired, or continue to serve.
A full list of service requirements, from World War II to the present, can be found on the va.gov website.
What if I don’t meet the service requirements?
You may be able to qualify for a VA home loan even if your service was cut short of minimum service requirements. A COE can be issued if you were discharged for one of these reasons:
- The convenience of the government
- Early out
- Reduction in force
- Certain medical conditions
- A disability related to military service
If you received a bad conduct, dishonorable, or other than honorable discharge, you may not be eligible for VA benefits. However, you can apply for a discharge upgrade. You have to receive an upgrade before you can get a Certificate of Eligibility (COE) and apply for a VA home loan.
Certificate of Eligibility (COE)
In order to qualify for a VA home loan, your lender will require a Certificate of Eligibility (COE). The COE verifies your service history and duty status. It must be included with loan documents to prove that you qualify for the VA home loan program.
How do I get my COE?
The va.gov housing assistance website suggests that you follow these steps to get a CEO:
- Gather your documentation (documentation varies by service status and is explained on the website)
- Apply for a CEO: online at VA/Department of Defense or download VA form 26-1880, fill it out, and mail it to the address on the form
There are different criteria for applying for a COE if you are a surviving spouse – and different forms to fill out based on whether or not you are currently receiving VA benefits. You are eligible to apply for the VA home program if you are the surviving spouse of a service member or veteran who died during service or from a service-related disability and:
- You have not remarried, or
- You remarried after age 57 or later than December 2003
Spouses of service members classified as missing in action or prisoners of war are also eligible.
Getting a COE can be a complicated procedure. The easiest and fastest way to apply is to go through your lender. An experienced, approved VA home loan lender such as Capital Bank, NA, will be able to walk you through what you need to do to get your documentation in order!
Credit & Income Requirements
Because the VA guarantees home loans but does not directly lend to individuals, it will be up to a lender to review your finances. They will determine whether you qualify for a loan and what interest rates to offer you.
The VA doesn’t set credit requirements. Typically, lenders require a minimum FICO score of 640 or above. The higher your credit score, the lower the interest rate you will be offered. (Some lenders let you apply for a VA loan with a low credit score, but it may cost you additional fees.)
It’s always a good idea to get your credit in good shape early in the homebuying process, before you apply for a loan.
The VA and lenders prefer to look at your debt-to-income ratio (DTI) as a loan qualifier. DTI determines if you can afford monthly mortgage payments in addition to your other debts. Your monthly required payments (car loan, credit card payments, etc.) are added to the monthly mortgage payment of a new home loan. That’s divided by your gross income to get your ratio.
The VA’s preferred maximum DTI is 41 percent. Borrowers may still be able to get a VA home loan with a higher DTI if they can prove they have enough “residual income” to qualify. Residual income is money left over after paying debts and basic living expenses, for example from savings, a second income, or other sources.
To get the loan terms that you want, you may be able to dismiss or reduce some of your debt to lower your DTI.
Additional VA loan financial requirements
Here are some additional costs that might come up if you are applying for a VA home loan.
Down payment: Most VA home loan borrowers aren’t required to pay a down payment. However, if you are subject to VA loan limits (see next section, below) and the price of the home you’re buying exceeds those limits – or if the sales price is higher than its VA-appraised value –then you will have to come up with a down payment to make up the difference. Down payments also may reduce the amount of your VA funding fee.
Funding fee: The VA funding fee is a one-time payment that most borrowers will make on a VA home loan. This fee is required by the U.S. government to help reduce the cost of the loan on U.S. taxpayers. You can choose to pay the VA funding fee by rolling it into the total amount of your loan or pay the full amount at closing. The chart on the funding fee page (hyperlink above) will help you figure out how much you’ll need to pay or if you are exempt.
Reserve funds: Another thing you will likely have to show your lender is “reserve funds.” These cash reserves may be needed for closing costs when you get your loan, or to prove that you have four to six months of housing expenses available in savings or investments. This shows your lender that you can easily make your mortgage payments in an emergency.
What documentation is needed for a VA loan?
Required documentation might vary by lender, but the following documents could be all you need:
- VA Certificate of eligibility
- Two years of W-2s
- Paystubs for the last 30 days
- Complete Bank Statements for the last 2 months
- Homeowners Insurance
- 2 years of federal personal and business tax returns (If self-employed)
- Mortgage Statement (if refinancing)
- Copy of note for current mortgage (if refinancing)
What are VA loan limits?
As of 2020, active-duty service members, eligible veterans, and survivors with full VA loan entitlement no longer have limits on loans over $144,000. If you’re in this category, you won’t have to pay a down payment on a home loan. Service members and veterans who already have an active loan or have previously defaulted on a loan are still subject to loan limits.
A “loan limit” is the maximum loan value the VA can guarantee. The maximum is determined by home prices around the U.S. and is specific to locale by county.
For a single-family residence in many U.S. counties, the typical limit in 2021 is $548,250. High cost-of-living metropolitan areas have higher limits: the residential limit in 2021 is $822,375 in cities such as New York City, San Francisco, and Honolulu, HI.
If you are subject to VA home loan limits, that doesn’t limit the amount you can borrow, but it does set the maximum amount you can finance without paying a down payment. You can look up the 2021 loan limit in your county on Nerdwallet.com.
Find out more about your loan limits eligibility at https://www.va.gov/housing-assistance/home-loans/loan-limits/.
What will cause my VA loan to get disapproved?
While VA home loans come with many benefits, borrowers still face the possibility of not having their loan application approved. A loan is usually denied for one or more of these reasons:
- The property doesn’t meet VA home loan requirements.
- The borrower doesn’t meet VA eligibility requirements.
- The borrower’s finances don’t meet the minimum standards to qualify them for a loan.
Property requirements for a VA loan
The home that you plan to purchase affects your eligibility for a VA loan. First, the VA expects the home you’re buying to be intended as your primary residence. It must be a conventional family home whether it’s a stand-alone dwelling, a townhome, or an approved condo development.
Next, your lender will request a specific VA appraisal of the property you want to buy. The appraisal is for two purposes:
- To determine that the purchase price being asked is in line with final sales prices of similar homes in the area, and
- To make sure the home meets the VA’s property requirements.
The VA appraisal results need to show that the home is move-in ready and check all the boxes on the VA’s Minimum Property Requirements (MPRs). This protects the interests of buyers, lenders, loan servicers, and the VA.
A property you really want may not qualify for a VA loan because it needs too many repairs before move-in (a fixer-upper). The VA does, however, offer rehab and renovation loans to purchase and repair fixer-uppers, or to refinance and repair an existing home.
What if I need to verify VA loan eligibility for my spouse?
If your spouse is eligible for a VA home loan but is currently deployed – and you are not an eligible service member or veteran – you can still get the ball rolling on buying a home!
VA loan assumptions require only that the borrower is service eligible and financially qualified for a mortgage. Work with a lender (and reference all the information we’ve provided on this page) to help you get your family financial and loan documents in order. You and your spouse may be able to draw up a Power of Attorney that will allow you to proceed with signing loan documents, if your spouse won’t be available when you close on the loan.
Apply for a VA home loan with Capital Bank
If you are, or have been, in the military and want to buy a home, it’s definitely worth your while to explore VA home loans for your financing. If you’re ready to start your journey, Capital Bank has all the resources you need. Capital Bank proudly guides veterans, service members and surviving spouses through the VA home loan process, helping them become homeowners. Explore our site to find more information on home loans and VA loans.
Have questions? Don’t hesitate to contact us or call 833-431-0364.