Demand has been sizzling for Veterans Affairs mortgages, better known as VA loans. These mortgages do not always require a down payment and are available to military veterans and active military members. VA loans are made through private lenders and are guaranteed by the Department of Veterans Affairs, so they do not require mortgage insurance. There’s no minimum credit score requirement.
The U.S. Department of Veterans Affairs is not a direct lender. The loan is made through a private lender and partially guaranteed by the VA, as long as guidelines are met.
If you think you may be eligible for a VA loan, here are some must-knows about the program.
Most members of the military, veterans, reservists and National Guard members are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability may also apply.
Active-duty members generally qualify after about six months of service. Reservists and members of the National Guard must wait six years to apply, but if they are called to active duty before that, they gain eligibility after 181 days of service.
Potential borrowers must obtain a certificate of eligibility. The form can be submitted online.
Loans guaranteed by the VA can be obtained without any down payment.
Another plus: A VA loan doesn’t require mortgage insurance, as do Federal Housing Administration and conventional loans with less than a 20 percent down payment. The benefit translates into significant monthly savings for VA borrowers. For instance, a borrower who makes a 3.5 percent down payment on a $200,000 FHA-insured mortgage pays $100 a month for mortgage insurance alone.
Although the costs of getting a VA loan are generally lower than for other types of low-down-payment mortgages, they still carry a one-time funding fee that varies, depending on the amount of the down payment and the type of veteran.
A borrower in the armed forces getting a VA loan for the first time, with zero down payment, would pay a fee of 2.15 percent of the loan amount. The fee is reduced to 1.25 percent of the loan amount if the borrower makes a down payment of 10 percent or more. Reservists and National Guard members normally pay about a quarter of a percentage point more in fees than active-duty members pay.
Those using the VA loan program for the second time, without a down payment, would pay 3.3 percent of the total loan amount.
Veterans Affairs does not require a minimum credit score for a VA loan, but lenders generally have their own internal requirements. Most lenders ask for a credit score of 620 or higher.
Borrowers must show sufficient income to repay the loan and shouldn’t have excessive debt, but the guidelines are usually more flexible than they are for conventional loans. VA guidelines allow veterans to use their home-loan benefits a year or two after bankruptcy or foreclosure.
VA loans are available only to finance a primary home. A VA loan cannot be used to purchase or refinance vacation and investment homes. The VA says there is no cap on the amount you can borrow.
The limit on VA loans vary by county, but it’s $417,000 in most parts of the country and up to $625,500 in high-cost areas in the continental United States and even higher in four counties in Hawaii.
Heritage Trust’s VA, FHA and Rural Housing loan programs offer more member benefits than most conventional loan programs. Features include minimal down payment required, 100% financing for home purchases in eligible rural areas and no maximum loan amount. To learn more or to get started, click here!