Everything you need to know about qualifying for a VA Loan

If you’ve served your country, there are various VA loan options that may serve you.

Whether you’re buying a home or want to learn how to make your current mortgage more affordable by refinancing, you’ll want to understand if you qualify and what qualifying for a VA loan means.

We’ll explain what types of VA loans are available, how to know whether you’ll qualify, and other guidelines that can help you take the next steps toward financing your home.

What is a VA loan?

A VA loan is guaranteed by the U.S. Department of Veterans Affairs. Lenders can often offer these loans without a down payment* and fewer requirements because the loans are backed by the government. This makes VA loans less risky for the lender and makes it easier for the borrower to purchase a home. 

Another perk of obtaining a VA loan is there is typically no mortgage insurance. The flexibility and favorable terms make it an ideal option for those that qualify. While lenders will have their own requirements, they are often more lenient with VA loans than conventional loans. 

*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits.

What types of VA loans are available?

There are different VA loans to choose from. The one that will benefit you depends on your situation and what you are looking to get out of a loan.

If you’re a new home buyer, you will need a purchase loan. Whereas, if you are already a homeowner, you may want to choose a refinancing loan or a home improvement loan.

VA purchase loan

This is the standard VA mortgage loan you would get to purchase a home. It has options that do not require you to make a down payment, pay closing costs, or pay monthly mortgage insurance.

VA refinance options

Cash out refinance loan

If you need cash to pay off debts, improve your home, or pay for other expenses, this loan allows you to borrow from your home equity. Unlike other types of loans, with a VA loan, you can borrow against 100% of your home’s equity.

If you originally bought your home with a conventional loan but are eligible for a VA refinance, this loan can replace your conventional loan.

VA Interest Rate Reduction Refinance Loan (IRRRL)

This loan may also be referred to as a VA streamline refinance. You cannot cash out home equity with this type of loan, but you can replace your current loan with it.

By replacing your current loan, you can lower your interest rate, and change from an adjustable to a fixed rate. You’ll also get the other benefits that come with a VA loan, such as no money out of pocket closing costs, and that you can pay off your mortgage sooner.

How to know if you’re eligible to for VA loan qualification

To be eligible for a VA loan, you must fall into one of three categories:

• You’re an active member or honorably discharged veteran who has either served 181 days of active service during peacetime or served at least 90 consecutive days of active service during wartime. 
• You have served more than 6 years in the National Guard or Selected Reserves.
• You’re the spouse of a service member who passed away in the line of duty. Typically, you cannot be remarried, but there are exceptions to this. 

To get approval for a loan, fill out a VA Certificate of Eligibility (COE). This is not needed before applying for a loan but it will be required before you can get approval. 

home.com by Homefinity can help you apply for COE, you can apply online through the VA’s benefits portal, or by mail with VA Form 26-1880.

Other VA loan qualification guidelines 

If you meet one of the above criteria and meet eligibility requirements, consider these other unique details of a VA loan to determine if this is the right option for you and to gain an understanding of what it takes to qualify.

Down Payment

Usually, a VA loan down payment* is not required. However, if you do have money to put down, it will save you money in the long run. 

*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits.

Debt-to-income ratio 

There is no mandated maximum debt-to-income (DTI) ratio*, with a VA loan. But, it is recommended that veteran and military members do not have a DTI ratio greater than 41%. 

*Debt-To-Income (DTI) ratio is monthly debt/expenses divided by gross monthly income

Credit score

The Department of Veterans Affairs doesn’t set a minimum credit score requirement, but many lenders do. The requirements can fluctuate, but typically a lender can help you find an appropriate loan program or help you improve your score. 

Closing costs

The U.S. Department of Veteran Affairs does not determine the closing costs. The mortgage lender will work out those details with you. Common factors that can impact the agreed-upon closing costs are VA appraisal fees, VA funding fees, credit reports, title insurance, and local and state taxes. 

Private Mortgage Insurance

Since the government backs VA loans, they don’t require Private Mortgage Insurance (PMI). This form of mortgage insurance is sometimes required with conventional loans.

Requirements related to the home’s condition and use 

During the VA appraisal, VA loan property requirements will be assessed. The home needs to qualify, just as you will need to meet requirements to qualify for a VA loan. These requirements include the following: 

• Working electric, heating, and cooling systems 
• A roof in good condition
• An adequate size 
• Clean water supply 
• Free of lead-based paint
• Sanitary sewage disposal 
• Free from dry rot and fungus 
• Accessible and properly ventilated attic and crawl space

Next steps to get a VA loan

To find out if you’re eligible and to move forward with a VA loan, home.com by Homefinity can help you understand and decide what type of mortgage is best for your situation. Contact us today to get started.

VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits.  home.com by Homefinity is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.

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