101 Guide to VA Home Loans
101 Guide to VA Home Loans
written by Phil Georgiades and Myriel Legaspi.
Created on June 22, 1944, by an act of Congress and signed into law by President Franklin D. Roosevelt, VA home loans were initially part of the Servicemen’s Readjustment Act. The bill was controversial at the time that it was signed since opposers believed that it incentivized not having to work. However, heads of government shared the common goal of assisting veterans returning home after World War 2.
Since its establishment, VA home loans have helped about 22 million veterans achieve the goal of homeownership with some of the best benefits on offer by any home loan program.
VA Loan Benefits
- $0 down payment requirements
- Lower monthly payments
- Low-interest rates
- No prepayment penalties
- No mortgage insurance premiums
- The ability to finance the funding fee with the VA loan
- 15- to 30-year fixed-rate mortgages
Once the applicant must meet all the eligibility requirements needed to qualify for the VA loan. They will be able to enjoy all of these great benefits.
VA Loan Eligibility Requirements
To be eligible for the VA loan, applicants must meet the VA home loan military service, property, income, and credit score requirements.
- Military Service Requirements
To be eligible for a VA home loan, the applicant must either be a veteran, an active-duty service member, or a qualifying spouse. Additionally, the applicant must still meet at least one of the following
Must have served at least 90 consecutive days of active duty service while in wartime or 181 days during peacetime.
Members of the National Guard or reserves must have served at least six years.
Must have been married to a service member who lost their lives while on duty or due to a service-related disability.
- Income Requirements
The applicant must have a steady source of income and the ability to make all of their payments on time and any outstanding debt they might have. Additionally, the applicant must also meet the compensating factor requirements to receive approval for the loan. The applicant’s income must come from one of the following:
A Full-Time Job
A Part-Time Job, although it must have existed for two years.
Self-Employment of at least two years
1099 for at least two years
Retirement and Pension
Seasonal Jobs for at least two years
Child Support with a three-year continuance
Alimony with a three-year continuance
Rental income reported in tax returns
Salaries that are not on the above list, like unemployment, workers compensation, GI Bill basic housing allowance, and cash payments, are not eligible.
- Credit Requirements
Currently, the VA does not have a minimum credit score requirement; therefore, the decision is up to lenders who usually require a minimum score of 640. However, some lenders are willing to accept lower credit scores. These lenders will instead consider other things like late payments, current mortgages, and collections reporting when making their decisions.
- Property Requirements
When it comes to properties that are eligible for the VA Home Loan, the property must meet specific requirements set up by the VA. Eligible properties include:
Single Family Residences must be safe to move into without any health and safety hazards, potentially disqualifying the property.
Multi-Family Dwellings require that the applicant lives in one of the units. The applicant can then rent out the other rooms. Hazards and safety standards still apply. Moreover, the maximum amount of units allowed for a multi-family dwelling is four.
Condos and Townhomes are also eligible; however, condos require VA approval.
Manufactured Homes and mobile homes are also eligible; however, they need to be set on a permanent foundation while mobile homes must be doublewides.
In addition to these eligible homes, some properties don’t qualify. These include homes located in flood zones with no flood insurance, Coastal Barrier Resource System, and in Airport Noise Zones 3 (Very Noisy). Other properties that are not eligible include cooperatives, timeshares, and condos, which are not approved by the VA.
VA Loan Limits
Just like other government-backed loans, VA loans have loan limits. However, as of January 1, 2020, these loan limits only apply to borrowers with more than one existing VA loan. The loan limit consequently increased for borrowers with more than one VA loan from $484,350 to $510,400.
These changes came from the signing of the Bluewater Navy Act on June 25, 2019, by President Trump. The new law came into effect on January 1, 2020, and virtually removed VA loan limits for first-time borrowers. However, because qualified lenders administer VA loans, a lender can set up their loan limits.
Such is the case with VA Home Loan Centers, which currently has a loan limit of $5,000,000 for borrowers who can afford it. These limits are set up by lenders and will vary depending on the lender’s confidence that the borrower will be able to make their monthly payments.
VA Home Refinance Loans
In addition to the regular VA home loans, the VA also offers two loans for the refinancing of an existing property. These two loans are the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out Refinance Loan.
The IRRRL allows eligible applicants to refinance an existing loan with a new lower interest VA loan. These loans change the rate and the term of the loan and can only happen on existing loans. Thankfully the process is streamlined and straightforward and helps limit out-of-pocket expenses because the loan can finance fees and closing costs. Also, no additional home appraisal will be required to qualify for the loan.
The VA Cash-Out Loan allows the borrower to refinance their existing home loan and take out any current home equity in cash. This money can then pay for debts, home improvement costs, or financial emergencies. The purpose of this loan is to pay off the original mortgage and replace it with this loan. Moreover, the refinanced amount can be up to the full appraised value of the property; the only requirement is that the borrower can make their monthly payments.
Phil Georgiades is the CLS for VA Home Loan Centers, a government-sponsored brokerage specializing in VA home loans. He has been practicing real estate for 22 years. To apply for a VA loan, click here.
Myriel Legaspi, USMC Veteran at VA Home Loan Centers
Direct: 858-284-0366; Email: firstname.lastname@example.org
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