VA Loan Guide
In this article, we’ll walk you through the basics of VA lending. We’ll talk about your VA benefits, down payments, mortgage insurance, credit requirements, closing costs, and VA loan limits. If you have questions about how to get a VA loan or cash out refinance, or how VA loans are different from regular loans, read on! We’ll do our best to answer your questions, plus direct you to more information about more specific questions you may have.
VA Loan Guide
The Basics of Your VA Home Loan Benefit
VA home loan benefits were created when the Servicemen’s Readjustment Act was passed in 1944. Following World War II, the United States recognized that our country owed our Veterans a great debt of gratitude. Nothing can repay Veterans for their military service and sacrifice on behalf of our country, but Congress recognized that providing benefits like this was one way to show our country’s thanks. Over the years, the Servicemen’s Readjustment Act has been amended and changed, and other laws like the Veterans Housing Act of 1970 and the Veterans Housing Benefits Improvement Act of 1978 have been passed. But the basic intent stays the same: our country is giving back by giving qualified Veterans unique opportunities for home loans that non-Veterans cannot get.
If you were in the armed forces, national guard, or are a surviving spouse, this means that your VA loan on your primary residence will be backed up by the U.S. Department of Veteran’s Affairs. You won’t receive a loan directly from the government, but your private lender will receive a guarantee from the government that they will be paid back a certain amount should your loan default. This allows VA approved lenders like HomePromise to give loans to people with challenging credit histories or people who can’t make a down payment. Since the government will pay the lender back for some of their losses, some lenders like HomePromise are willing to take a risk where non-VA lenders cannot!
No Down Payments Required for Veterans
One great perk of VA home loans is that they do not require a down payment at closing. Most other home loans require at least a 3 percent down payment. This makes buying a home faster and easier, since you don’t need to save for a down payment.
Even though this is an option for you if you qualify for a VA loan, there are actually some great benefits to making a down payment. You’ll have to pay a VA funding fee on every VA loan you take out. This is a fee that takes the place of mortgage insurance (we’ll cover that in the next section!) But the funding fee actually gets less expensive with a larger down payment, saving you more money in the long run! This may sound complex, but at HomePromise, we’ll help you make sense of saving the most money on your VA loan.
No Mortgage Insurance for Veterans
Like we mentioned in the previous section, VA loans do not require monthly private mortgage insurance (PMI). PMI is very common for conventional loans, because it protects the lender if you stop making your mortgage payments. But since the VA loan program is backed up by the government, PMI is not required for VA loans. This is great news for you! Monthly PMI costs are often high, especially if your credit history is less than perfect. But if you meet the VA requirements for a VA loan, you can avoid that altogether. Since you’re not paying for PMI, you can actually afford a home that’s worth more, or simply save more money on your loan!
Credit Requirements for Veterans
You may have heard that 640 is the minimum credit score you’ll need to get approved on a loan. For conventional mortgage lenders, that’s often true. With a credit score of less than 640, it’s extremely difficult to get approved for a conventional mortgage, and even if you do, your interest rate will probably be through the roof. But some VA lenders like HomePromise can approve people with credit scores lower than 640! We can’t guarantee anything without looking at your specific situation, but HomePromise is one of the few VA lenders that may approve you with a credit score as low as 580. We may also approve you even with a limited credit history, thanks to your VA loan eligibility!
Closing Costs for Veterans
On conventional and VA loans, there will be closing costs. These will vary based on your geographic location, but some common closing costs include the origination fee, the appraisal, and the credit report fee. Veterans can’t avoid closing costs, but there is some good news! First of all, under VA guidelines, VA lenders allow sellers to contribute to paying your closing costs up to 4% of your mortgage value, where sometimes conventional lenders only allow sellers to contribute 3%. Another benefit of the VA program is that certain fees cannot be charged to you as the borrower. Some of these fees include the escrow fee, the underwriting fee, and the lock-in fee. So, you are automatically in a better place to avoid high closing costs as a Veteran!
VA Loan Limits
Your loan limit is the maximum loan amount you can borrow. With the VA loan program, your VA loan limit is related to your VA entitlement. So, what is your VA entitlement? It’s the amount the VA promises to pay your lender if you default. If you are eligible for a VA loan, your entitlement will be 25% of your VA mortgage amount unless some of your entitlement has been used already with another VA loan or you had some of your entitlement lost in a VA foreclosure. There are complicated rules to restore your entitlement, so you’ll want to speak to a VA lending expert to navigate these rules. Please call us at 800-720-0250 to get our expert advice.
There is good news for you in your entitlement in multiple situations. If you’ve never used your home loan benefit, you can use your entitlement to get a loan for your dream house with no money required as a down payment! But don’t stop there. As mentioned above if, you’ve used your VA benefits before, paid it off, and sold the property, you can use your entitlement again! You can even have two VA loans at the same time! As we’ve mentioned, you need to call us at 800-720-0250 so we can help you understand how the VA entitlement process works. Lastly, if you have a foreclosure in your past, you may still be able to use your remaining entitlement and still not need a down payment.
These are the basics of VA loans. If you want more information, or if you would like to hear about what we can do for you, give us a call at 1-800-720-0250. We are home loan experts, and applying with us is always free! We can help you think through your unique situation to find the solution that’s best for you.
VA Loan Guide