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VA Loan Program Guide
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The VA Home Loan program is a substantial benefit offered to veterans and select
active duty military personnel. It is the only mortgage program to offer no down payments,
no monthly mortgage insurance premiums, no prepayment penalties, low interest rates, and
a simple qualification process.
To learn more about VA loans or to start the application
process, continue reading this guide.
What Is a VA Loan?
VA loans are similar to other types of home loans. They do, however, have several
key distinctions:
- VA loans are underwritten by private banks but guaranteed by the Department of Veterans
Affairs via the funding fee.
- Unlike other types of home loans, veteran loans do not typically require any down
payment.
- Borrowers who do not make down payments are not forced to pay for monthly private mortgage
insurance.
- VA borrowers with an existing VA loan are eligible for the VA streamline
refinance loan.
Advantages of VA Loans
Some veterans wonder why they would want a VA mortgage when they can qualify for
other types of financing. Here are some of the benefits of VA loans as compared
to FHA or conventional loans:
Down Payment
The most substantial benefit of VA home loans concerns the down payment. Veterans
can purchase their homes with no down payment, which can save $6,000 to $40,000
out-of-pocket on a $200,000 home. In contrast, FHA loans
require at least a 3.5%
down payment and the money down for conventional loans runs even higher. Additionally,
borrowers who put down less than 20% are typically charged mortgage insurance premiums.
Assumability
Another advantage of a VA mortgage is assumability. Veteran loans can be taken over by another qualified
veteran under the original loan terms, while most conventional financing is not.
Loan assumption is beneficial when the home you are purchasing falls under an
existing VA mortgage or when you would like someone else to take over your loan
in the future or when trying to sell your home and mortgage rates are
significantly higher than your interest rate.
Debt to Income Ratio
The Department of Veterans Affairs backs a more lenient loan standard than most
traditional lenders. While most home loans have two debt to income ratio rates
and are limited at a 36% debt-to-income ratio with no more than 28% covering the
mortgage, VA borrowers only worry about a single debt to income
ratio. The VA loan debt to income ratio is 41%. Lenders use debt to income ratios (DTI) to determine whether
borrowers can afford to repay the mortgage.
You can use the debt to income ratio calculator on this site to determine your own debt to income ratio
or use our VA mortgage calculator.
The simplest method for calculating debt to income ratios is to add up the monthly
mortgage principal, interest, taxes, and insurance (PITI) and divide the total by
monthly gross (before taxes) income. For example, a person with a future monthly
mortgage of $800, taxes of $400, insurance of $300, and wages of $4,000 has an approximate
debt-to-income ratio of 37.5% (($800 + $400 + $300)/$4000 = 0.375 = 37.5%).
Loan Limits
While the Department of Veteran Affairs does not set a maximum loan amount, the
total of the loan, VA funding fee, and energy efficient improvements cannot be larger
than the appraised value or purchase price. Many mortgage lenders will not grant
VA loans beyond the conforming loan limits currently set at $417,000 for the
continental United States and $625,500 for Alaska, Hawaii, Guam, and the U.S.
Virgin Islands. The VA will guarantee only 25% of this conforming conventional
loan limit based on the county where the property is located. It is this VA
guaranty, also known as the veteran's full entitlement, that permits veterans to take advantage of favorable
mortgage loan terms without a down payment.
Steps for Qualifying for a VA Home Loan
If you are considering a VA-backed home loan for a purchase or mortgage refinance, you should
start the home loan process soon. At a minimum use our VA mortgage calculator
with taxes and insurance to estimate a VA piti mortgage payment. Even if you do not hold a purchase contract, you can be
pre-approved for a VA loan for when your dream home comes into sight. Mortgage pre-approval lets you know
the maximum purchase price you can afford and the estimated p.i.t.i. mortgage payments you will have.
To get started on your VA mortgage, follow the steps below.
Basic VA Loan Requirements
The first step to getting a VA home loan is to make sure that you meet the general
loan requirements.
- Are you eligible for a VA loan? If you fall into one of the categories below, excluding
dishonorably discharged personnel, you are typically eligible.
- Current, continuous active duty for at least 90 days
- Members of the Reserves and National Guard who have served for at least 6 years
- 90 days of active duty wartime service during World War II, the Korean Conflict,
Vietnam, Persian Gulf War
- 24 months of active duty or the full service of active duty orders lasting 181+
days during July 1947 to June 1950, February 1955 to August 1964, or May 1975 to
August 1990, or August 2, 1990 to present.
- Unmarried surviving spouses of eligible veterans who died of service-related injuries
- Spouses of active duty personnel listed as missing in action or a prisoner of war
for more than 90 days
- Discharges for service-connected disabilities, hardships, or medical conditions
are reviewed before approval.
- Have you fully or partially used your home loan entitlement? You can have your entitlement
restored by:
- Selling the original property and repaying the loan in full
- Having another veteran assume the loan, substituting his/her own entitlement
- Paying the loan in full and keeping the property (one time only)
- Do you have a debt to income ratio of less than 41%? Use the information presented
above to calculate your number.
Documents Needed
Once you are eligible to participate in the loan program, you can collect the documents
needed.
These include:
- Copy of DD214 for discharged personnel (not the DD214 original)
- Original, signed statement of service with Social Security Number, entry date, and
time lost for
active duty personnel
- Copies of W-2 forms for previous two years
- Employment and residency histories for previous two years
- Copies of quarterly or semi-annual statements from all investment accounts
- Copies of checking/savings account statements for previous three months
- Copies of paycheck stubs for previous 30 days
- Applicable divorce decrees or bankruptcy judgments
- Payment for any costs not covered by the VA loan
- Certificate of Eligibility (the Certificate of Eligibility is usually requested
by the VA lender)
Processing
Finally, all necessary documents will be sent to the va mortgage lender for underwriting. You
may be asked for more information, or you may just receive your full or conditional
VA loan approval within a few weeks. Once your VA home loan is approved, your
have a fully executed purchase contract and VA appraisal, you are ready to schedule
a closing and complete the transaction.
In most cases, a VA home loan is a simple, affordable way for former/current
active duty personnel to buy or refinance a property. If you are an eligible
Veteran, the VA loan program is right for you, take the next step today.
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