VA-backed loan information

Veterans Affairs, or VA, home loans, are a popular benefit of military service. Here are several things you should know about them.

What is a VA loan?

It's a type of mortgage in which the Department of Veterans Affairs (VA) guarantees your promise to repay the lender. Note that the VA doesn't issue the mortgage. You get it through a private lender and the VA guarantees it. Also, it's important to understand how a VA loan differs from a conventional loan.

Who's eligible for a VA loan?

Requirements vary based on whether you're a veteran or active duty, whether you served or are serving in the National Guard or Reserve, and the era in which you served.

Cadets at the service academies, spouses under special circumstances and people who served in certain government organizations may also be eligible. You can check full eligibility details, including different requirements for those who served before Aug. 2, 1990, on the VA website (Opens in New Window).^{See note1}

What's a VA Certificate of Eligibility, or COE, and how do I get one?

The COE confirms that you've met the service requirements needed to get a VA loan. You'll need one every time you apply for a VA loan. There are a couple ways to get yours:

• Apply online through the VA's eBenefits portal (Opens in New Window).^{See note1}
• Ask your lender if they can get it for you.

Even with a COE, you may need to provide some service-related documentation.

Do I need to qualify for a VA loan?

Yes. You'll need to meet financial guidelines set by the VA and your lender. The lender will look at things like your credit score and history, assets, and employment and income history. They may also require information about your other expenses, such as child-care costs.

Can I get a VA home loan with bad credit?

The VA doesn't require a minimum credit score, but most VA loan lenders do have a minimum requirement. Check with your lender for more information. It's also important to know where your credit stands before you start looking for a home. Check your credit report for errors and work with the credit bureaus to correct them. Your lender may require that you address collections and past-due accounts before they approve your application.

What's the maximum VA loan amount?

As a veteran, a guarantee from the VA to reimburse your lender up to a dollar amount if you fail to repay your mortgage is known as your VA loan entitlement. For borrowers with full entitlement, there's no limit to the amount the VA will guarantee over a certain loan amount (Opens in New Window).^{See note1} If you already have part of your entitlement in use by a previous loan, you may have a remaining entitlement available. In this case, your lender may require a down payment if you apply for more than the conforming loan limit for the county the property is located in (Opens in New Window).^{See note1}

What kind of home can I buy with a VA loan?

First, it must be your primary residence — not a vacation home or investment property. Occupancy rules generally require you to move in within 60 days of closing. There are some exceptions, like if you have PCS orders or are deployed.

As for the type of home, it can be an existing single-family home, townhouse or condo, or new construction. Mobile and manufactured homes on a permanent foundation are eligible, but not all lenders finance them.

The VA has high standards on the condition of the property. That means you may have a harder time using a VA loan for a major restoration project. Structural, safety and sanitary issues noted by the appraiser usually need to be fixed before closing. Some lenders may offer special VA programs for homes that need alterations or repairs.

Will I have to pay for private mortgage insurance, or PMI?

No. PMI protects lenders from the risk that you'll default on your loan. Since VA loans are guaranteed by the VA, they don't require PMI.

Can I use a VA loan more than once?

Yes. You can reuse your VA loan benefits if you have leftover entitlement or no longer own the home you bought with a VA loan. The other requirement is that you haven't defaulted on a VA loan.

Can I refinance a VA loan?

Yes. There are two ways to refinance a VA loan: a cash-out refinance and a VA Interest Rate Reduction Refinance Loan, or IRRRL.

A cash-out refinance lets you get cash from the equity you've built in your home. You'll need to go through a credit check and underwriting, and the lender may require an appraisal.

A VA IRRRL lets you refinance the outstanding balance of a fixed-rate VA loan with the requirement that the refinance will lower your interest rate and monthly payment. The only exception to this requirement is if you refinance an adjustable-rate VA loan to one with a fixed rate. A VA IRRRL is usually easier, faster and less expensive than most conventional loan refinances.

• In some cases, a full property appraisal isn't required. That can save you hundreds of dollars compared to a typical refinance.
• You may not have to verify your income, meaning less paperwork and a speedier path to approval.
• The VA funding fee is lower than it is for purchase loans — just 0.5% of the loan amount. You may be able to roll this cost into the loan. Just remember that you'll pay more in interest and have a larger mortgage payment.

Here are some other things to know about getting an IRRRL:

• Lenders will review your housing and payment history and may pull your credit score or report. Credit policies and appraisal requirements vary by lender.
• Occupancy rules are more relaxed. You only need to certify that you previously occupied the house.
• If you have a second mortgage on your home, the holder of that mortgage must agree to continue being the second mortgage.
• You can't get cash back at closing.
• You can buy discount points to lower your interest rate. Each point is equal to 1% of the loan amount. You can roll the cost of two points into your loan. Additional points are paid out of pocket.
• If you're the surviving spouse of a VA-eligible borrower, you can use an IRRRL if you were on the original mortgage.

Why refinance?

There are several situations where a refinance could make sense:

• Interest rates are lower than they were when you took out your original VA loan.
• You want to shorten the term of your loan to pay it off faster.
• You want to switch from an adjustable-rate VA loan to one with a fixed rate.
• Your marital status has changed.

Since there are guidelines around these scenarios and certain requirements vary by lender, you should consult with your lender to discuss your options.

Do I need money to get a VA loan?

There may be certain costs associated with receiving a VA loan, such as a funding fee, that may be rolled into your total loan amount depending on your circumstances.

A funding fee is a one-time fee that a veteran, service member, or survivor pays on a VA-backed or VA direct home loan to help reduce the cost of the loan guarantee for US taxpayers. Does everyone pay a funding fee? No, you won't have to pay a VA funding fee if you meet several qualifications (Opens in New Window).^{See note1} Here are some examples for those exempt from the fee, including:

• Those who get VA compensation for a service-connected disability.
• The surviving spouse of a veteran who died in service or from a service-connected disability.
• Active duty Purple Heart recipients.

Be sure to check online to see if you are exempt from the VA funding fee (Opens in New Window).^{See note1}

How much is the funding fee, and how can you pay it? The amount of your funding fee depends on several factors that you can estimate by using the VA funding fee rate charts (Opens in New Window).^{See note1} The fee typically ranges from 1.4% to 3.6% of the loan amount. The exact fee amount is based on the loan purpose, your down payment amount, your service history and if you've used your VA loan eligibility before. You can include the funding fee as part of your loan, or you can pay for it separately at closing.

This sounds complicated, how can I get help? Yes, navigating the VA loan requirements can be tricky, but you're not alone. A good place to start is the online resource for VA-backed loans (Opens in New Window).^{See note1} Also, consider working with a realtor with VA-backed loan experience, who can help you understand all the costs associated with your loan, and which expenses are negotiable with the seller.

Are there rules regarding co-borrowers?

Generally, your co-borrower must be your spouse or another veteran who will live in the house. If not, you can try to pursue a joint VA loan, but many lenders don't offer them. With a joint VA loan, your VA guarantee amount is lower and the application process is typically more complicated.

Is there a prepayment penalty?

No. You can make extra payments to pay off the loan faster and reduce the total amount of interest you end up paying.

VA loans require an upfront, one-time payment called a VA funding fee (Opens in New Window).^{See note1} The fee can usually be added to the loan, just remember you will pay more interest and have a larger mortgage payment.

Is a VA loan always the best mortgage for service members and veterans?

Not necessarily. If you have a down payment of at least 20%, a conventional loan might be less expensive since you won't have to pay for PMI. If you decide to go with a VA loan, you'll need to pay the VA funding fee unless you are exempt. Since there are many factors to consider when buying a home, it's important to talk with your lender to discuss all your options and which questions to ask.

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