If you are a veteran, thank you for your service! The entire Capital Bank Home Loans team appreciates the sacrifices you have made in defending our country. If you are reading this, then you are most likely considering buying a home and would like to know more about VA loans. VA home loans are a terrific benefit that can help you get into your dream home.
What is a VA Loan?
A VA loan is a low or zero-down payment mortgage option offered to eligible veterans and active duty service members and their families. VA loans are partially backed by the Department of Veterans Affairs (VA) and are issued by private lenders. Capital Bank Home Loans has been a VA lender since 2011, has closed thousands of VA loans and has some of the top ranking VA Mortgage Bankers in the business.
Types of VA Loans
There are several types of mortgage loans you can apply for:
- Purchase Loan
- Cash-Out Refinance Loans
- Interest Rate Reduction Refinance Loan
- Native American Direct Loan
VA Loan Benefits
So what makes a VA loan so special? VA loans have special benefits only available to eligible veterans, active duty service members, and in some cases, their spouses. VA loans are backed by the government up to 25% of the loan value, making you a less risky borrower to your private lender. This gives you more flexibility in the home buying process if you are eligible.
The primary VA loan benefits include:
- In some cases, there’s no required down payment. That’s right! Some VA loans are able to offer 100% financing to qualifying veterans.
- No PMI. One of the biggest benefits of a VA home loan is that there is no private mortgage insurance (PMI). With most loans you’d need to pay private mortgage insurance in addition to your principal and interest payments if you put less than 20% down. A VA loan will not have PMI, even if you decide to put no money down.
- No restrictions to where you buy or for how much. The Department of Veterans Affairs does not have a limit to how much you can borrow but, keep in mind, you do still have to qualify with proof of income and employment.
Some other VA loan benefits may include:
- Better terms and interest rates.
- No penalty fees for paying your loan off early.
- Fewer closing costs.
VA Loan Requirements
Now that you have an idea of some of the benefits that a VA home loan offers, let’s talk about some requirements. Below are some common requirements for VA loan applications:
Credit score requirements
As with most things related to finance, your credit history is an important factor in securing a VA home loan. Although the VA does not specify a minimum credit score, your private lender might. Check with your mortgage lender to see if they have a minimum credit score requirement.
Can you qualify for a VA loan with a low credit score?
Some lenders let you apply for a VA loan with a low credit score but it may cost you additional fees.
Debt to income requirements
Your debt-to-income ratio (DTI) is another important factor when it comes to VA loans. Again, the exact DTI for loan approval will depend on your lender and personal situation but, generally speaking, you can expect up to 45% to be the maximum acceptable DTI for a VA loan.
Can you qualify for a VA loan if you do not meet the debt to income requirements?
Every situation is unique and to offer the best answer, contact your mortgage banker. In some cases, your debt-to-income ratio can be adjusted by including any residual income you may have.
VA Loan Restrictions
With VA loan requirements covered, it is important to mention there are still some restrictions as to exactly what types of properties you may purchase.
If you want to use a VA loan to purchase a home, that home must be your primary residence. This means that you and your family must intend to live in the home after purchasing it. VA loans will not cover investment properties or a vacation home.
Your home must qualify for VA loan
This is one of the harder aspects of VA loan restrictions to explain. Before you can purchase your home using VA loans, your property must qualify. The VA will send a specially appointed VA appraiser to assess the house. Here is a good breakdown of the VA property requirements but in general, your home must be a conventional (non-unique) home in good working condition.
Does my home qualify for a VA loan?
Your VA appraiser will have final say in whether your home qualifies for a VA loan. To ensure the best chances for your property to be approved by the VA’s Minimum Property Requirements (MPRs), make sure your home covers the following:
- Mechanical systems are operating safely and are deemed to have reasonable future utility.
- Adequate heating supply that is in good working order.
- Roofing must be in good condition with no major leaks.
- Property must be free of any structural threats such as termites, rot, or fungus.
- Generally speaking, it is best to avoid homes listed “as is” as these homes tend to have one or more of the above listed issues.
Your property must be a conventional family home. VA appraisers tend to dislike unique properties due to the complications they can create when trying to find recent comparable homes. In addition, your lender may have additional restrictions to certain unique homes including but not limited to: ranches, converted churches, and homes with geodesic domes.
What if I want to purchase a condo with a VA loan?
The Department of Veterans Affairs has a condo database of approved developments. If your dream condo is not on the VA’s list, your lender can ask the VA to approve this development. Keep in mind that the VA’s process for adding a new condo development to their approved list can take months and is not guaranteed to be approved once the process is over.
Can I have two VA Loans at one time?
As long as you have enough entitlement, you can have two VA loans at one time. This often comes into play when active duty personnel are transferred and want to purchase a home without selling their existing property.
VA Loan Mortgage Limits
You might be wondering exactly how much house can you buy with a VA loan. According to the VA’s loan limit documentation, eligible veterans, service members, and survivors with full entitlement no longer have limits on loans.
How much can you borrow with a VA loan?
With that being said, it is still up to your lender to determine how large of a mortgage you can borrow. Your mortgage banker will determine the size of loan you can afford by assessing your credit history, income, and any assets you may be holding.
VA Funding Fee
Before we jump into VA loan eligibility and the application process, we would like to mention an often overlooked topic related to VA loans. The VA funding fee is a one-time payment that you will make on a VA home loan. This fee is required by the U.S. government and helps reduce the cost of the loan for U.S. taxpayers. The VA funding fee can be paid for in a variety of ways and by no means has to be paid upfront. When you close on your VA loan, 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 VA funding fees page has a rate chart that goes into greater detail as to how much you can expect to pay.
Who is exempt from the VA funding fee?
There are a few exemptions to the VA funding fee. The most common is a service disabled veteran who is receiving VA compensation. You may be eligible for a refund of the VA funding fee if you are later awarded disability status from the U.S. Department of Veterans Affairs.
VA Loan Eligibility
Okay this all sounds great, but now you may be wondering, are you even eligible for a VA loan?
Who is eligible for a VA loan?
VA loan eligibility standards differ depending on your status in the military. There are four primary categories that the Department of Veterans Affairs will assess your eligibility from. These categories are active duty, veteran, Military Reserves or National Guard, and military spouse. You can reference the VA loan program eligibility requirements here.
What if I don’t meet the minimum service requirements?
If you do not meet the minimum service requirements for a VA loan, you may still be able to qualify if you were discharged for some of the reasons listed below (for a more comprehensive list, please refer to the VA’s minimum service requirements page):
- Reduction in force
- Certain medical conditions
- A service-related disability
How to apply for a VA Loan
Alright, you’ve met the eligibility requirements and you’ready to apply for a VA loan but you might be wondering where to even start.
First, you will need to have a VA Home Loan Certificate of Eligibility (COE). The VA will require some information and documents from you to apply for a COE so it is best to prepare your documents beforehand so that you can get through the application process smoothly.
How to prepare for the VA COE application?
The VA has a comprehensive COE application page that will list out exactly which documents you will need to have present depending on your status within the military. If you are a veteran or surviving spouse, you’ll need a copy of you or your veteran spouse’s discharge or separation papers (DD214). If you are currently serving on active duty, you will need a statement of service signed by your commander or a personnel officer.
How do I apply for my COE?
The VA has an easy to use eBenefits website portal for you to apply for your Certificate of Eligibility. You may also apply for your COE by mail. Simply download VA Form 26-1880 and mail it to the address listed on the form.
Getting Started with the VA Home Loan Application
Now that you have your COE, it’s time to reach out to your lender to get started on your VA home loan application. First, you will need to decide which type of VA home mortgage works best for you. The VA has a few options.
VA Mortgage Loan options
If you are a conventional home buyer, you will most likely be looking to secure VA-backed purchase loans. This loan will help you buy, build, or improve a home with a competitive interest rate and the option to put no money down without restriction.
Interest Rate Reduction Refinance Loan (IRRRL):
If you already have a VA home loan and would like to reduce your monthly mortgage payment or interest, an Interest Rate Reduction Refinance Loan (IRRRL) could be the right choice for you.
Cash-out refinance loan:
A VA-backed cash-out refinance loan can help you take cash out of your home equity. This loan will replace your current loan with a new VA loan under different terms. You can also use a VA cash-out refinance to refinance a non-VA loan into a VA-backed loan.
We would also like to mention that the VA offers a Native American Direct Loan (NADL). If you are veteran, and either you or your spouse is Native American, you may qualify for this loan. Because the VA directly backs this loan, you do not need to contact a private lender – the U.S. Department of Veterans Affairs will serve as your lender.
Contact your lender to get started on your VA home loan application
As a VA lender since 2011, Capital Bank has over a decade of experience with helping members of our armed forces buy their dream home. Our lenders can answer any of your questions and guide you through the VA loan process. Our own process is transparent and intuitive to provide you with the smoothest path to closing your home and getting the keys!
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