What is a VA home loan?
The US Government's VA loans program helps veterans, active-duty service members and their families qualify for a home loan. Though they are issued by private lenders like Guaranteed Rate, VA home loans are backed by the US Department of Veterans Affairs. Created during World War II to help returning service men and women purchase homes, this program has guaranteed over 22 million VA loans since 1944.
VA home loans feature no down payment or private mortgage insurance (PMI) requirements, making them a great choice for any veteran or active service member looking to purchase a home. Since the housing market collapse of the 2000s, VA home loans have become even more critical in the wake of stricter lending requirements. For this reason, a guaranteed VA loan is often the best and easiest way for veterans to purchase a home of their own.
What are VA home loan requirements?
A VA loan is a no-brainer for qualified homebuyers and refinancers. The intended candidate is a service member or surviving spouse with a clean financial record. Ask yourself these four questions to determine if you meet the minimum VA home loan requirements:
Are you a current or ex-military personnel?
Are you the surviving spouse of a current or ex-military personnel?
Have you defaulted on a home loan within the last 12 months?
Have you declared bankruptcy within the last two years?
If you answered "YES" to either of the first two questions and a resounding "NO" to questions three and four, you most likely meet the basic VA home loan requirements.
Other VA home loan requirements have to do with military service time. Specifically, you must have serve for 90 or more days in wartime or 181 or more days in peacetime. In both cases, the stipulation is waived if you are discharged due to a service-related disability. Reserves and National Guard soldiers must serve for at least 6 years to be eligible.
Spouses of deceased service members are eligible for VA loan benefits, provided they have not remarried and that the deceased either:
Died in service or from a service-related disability.
Was missing in action or a prisoner of war for at least 90 days.
Was rated totally disabled and was eligible for disability compensation at the time of death.
Children of deceased veterans are not eligible for VA loan benefits.
The VA loan home advantage
VA loans are fully backed by the government and offer a myriad of advantages for your home purchase or mortgage refinance. Here are the six biggest:
No money down
While conventional loans generally require down payments that can reach up to 20%, no such thing is required with a VA home loan at or under the local conforming limit. Down payments are still an option, of course, but they are not a requirement. The VA allows you to purchase jumbo loans, but requires you to supply 25% of the difference between the loan amount and the loan limit.
No PMI
Private Mortgage Insurance (PMI) is a requirement when you put less than 20% down on the purchase of a home and typically adds 0.2-0.9% of expenses to your monthly mortgage. With a VA loan, you can wave goodbye to PMI!
Competitive interest rates
Since VA loans are guaranteed by the federal government this can provide lenders with a greater sense of safety and flexibility. This can ultimately lead to a more competitive interest rate than you may otherwise receive.
Easier to Qualify
Similarly to the interest rates, the VA loan being backed by the government also lets the banks assume far less of the risk. This can lead to less stringent qualification standards, once the aforementioned qualifications are met.
Fewer credit restrictions
Reduced restrictions mean easier qualification. With a VA loan, you’re allowed a higher debt-to-income ratio and afforded more leniency with your credit score.
Seller assistance
The VA allows sellers to assist with up to 4% of closing costs.
Easy refinance
Borrowers can refinance their homes with a VA streamline or cash-out loan. The streamlined version lowers the mortgage rate of an already existing VA loan, usually for less than the current principal and interest. This means it doesn't require a credit check or appraisal. The cash-out option involves a credit check and appraisal, since the home’s value represents the maximum loan amount and the new loan will be larger than the existing loan.