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VA Home Loan Requirements 2021: How to Qualify for this 100% Loan

VA Home Loan Requirements 2021: How to Qualify for this 100% Loan

by Aly J. Yale

What are the current requirements for a VA home loan?

If you meet VA home loan requirements, you’d be hard-pressed to find a better way to buy a house.

Not only do VA loans have flexible credit score requirements, no loan limits, and no mortgage insurance fees, they also require 0% down payment whatsoever. That means you can buy a house with 100% financing.

Since VA loans became available in the 1940s, they’ve simplified the homeownership process for millions of active-duty military servicemembers and veterans.

Hundreds of thousands of military families buy homes with VA loans every year. Whether you’re a first-time homebuyer or relocating to a new base, you could join the ranks of VA homeowners in 2021. 

Ready to buy a home with a VA loan? Start here.

Table of Contents

What is a VA home loan?

A VA home loan is a mortgage backed by the U.S. Department of Veterans Affairs (VA). They’re specifically designed for active-duty military members, veterans, and their surviving spouses, and they come with a number of benefits not available with other mortgage loan types.

VA loans are issued through approved private lenders — not the VA directly. Instead, the VA insures these loans, meaning lenders are able to approve loans with more lenient guidelines.

Who can get a VA loan?

To qualify for a VA loan, you have to meet the military service requirements. This means either you or your co-buyer needs to:

  • Have served at least 90 consecutive days of active duty during wartime, or 181 days or more during peacetime (see exact dates of service here)
  • Be on current active duty with at least 90 continuous days of service
  • Have served 24 consecutive months starting September 8, 1980 or later
  • Have served six years or more in the National Guard or Selected Reserves

Spouses who were married to servicemembers who died in the line of duty, or due to a service-connected disability, injury, or illness, may also qualify, provided they have not remarried.

To qualify for a VA loan, you’ll need what’s called a Certificate of Eligibility, or COE.

You can request your COE through the VA eBenefits portal. A VA-approved mortgage lender can also look up your COE in just a few minutes once you’re ready to apply.

VA loan eligibility requirements

Checking your service eligibility is only the first step —  though it is an important one!

Next, your lender will verify your income and finances to make sure you meet their (and the VA’s) borrowing requirements.

The VA gives lenders a lot of freedom to determine whether a veteran or active-duty borrower qualifies for a loan. But lenders can add their own criteria to government guidelines, and you’ll find that some are more flexible than others. 

Check your eligibility. Start here.

Credit score 

There are no set credit score minimums for VA loans. The VA simply asks that lenders consider “all qualified veterans who apply.”

Most lenders will have a minimum credit score requirement, though, usually in the 580-620 range.

But if your score is below 580, it’s still worth applying. People often underestimate their eligibility, and lenders that specialize in VA loans may have a program that’s right for you.

Debt-to-income ratio (DTI)

Unlike credit score requirements, the VA does recommend that a borrower’s debt-to-income ratio (DTI) is 41% or less.

But here, too, lenders can be lenient. The VA allows them to go above 41% if you have what the VA calls “compensating factors.” These can include a strong credit history, significant assets, a down payment, and many other scenarios.

Down payment requirement

VA loans do not require a down payment, as long as you have your full entitlement. If you do, you can finance the full purchase price of your home (plus your funding fee).

If you have a partial entitlement, you may still qualify for a VA loan with 0% down, depending on the price of the home.

Borrowers with no remaining entitlement have two options.

If you paid off a previous VA loan, you can apply for your entitlement to be restored using Form 26-1880.

But if you are still paying on a VA loan and have already used your full entitlement, you’ll need to pay that off and have it restored before you can use the benefit again. 

You can also apply for down payment assistance to help cover the upfront costs.

VA funding fee

Unlike FHA loans and USDA loans — the other government-backed mortgage programs —  VA loans don’t have a mortgage insurance premium. Here they have a leg up on conventional mortgages as well, which require you to pay private mortgage insurance (PMI) until you have 20% equity in your home.

Instead, VA mortgages require a funding fee — a one-time, upfront payment you make at closing. Currently, the fee is anywhere from 1.4% to 3.6% of the home’s purchase price, depending on your down payment.

Fortunately, this fee can be rolled into your loan balance and spread out over the course of your repayment term. Some borrowers may also be exempt from the fee, including those who are on VA disability compensation.

Property requirements

Before the VA will agree to insure a new mortgage, the home will need to be appraised. The appraiser must be qualified to conduct VA appraisals, which are stricter than other types of home appraisals. The home you want to buy must meet certain minimum standards before the lender can approve the loan.

Requirements include:

  • Sufficient space for living, sleeping, cooking, dining, and sanitary facilities
  • Proper drainage
  • Street access
  • Safe topographic conditions
  • Continuous potable water supply
  • Individual sewage disposal

There are many other requirements a property must meet, and any defects threatening the safety, sanitation, or structural soundness of a property must be noted in the appraisal as well.

Because of these strict standards, some sellers may be hesitant to accept offers from a VA-financed buyer. This is where having an experienced real estate agent on your side can help. Choosing a mortgage lender with deep experience in VA loans (not to mention a track record of on-time closings) can help, too.

Loan limits

VA loan limits were eliminated in 2020 for veterans and active-duty servicemembers who have their full entitlement. But not having a loan limit isn’t the same as qualifying for any loan amount.

Your VA lender will use your credit history, income, and assets to determine whether you can afford the mortgage payment on a particular property.

How do I find out if I have my full entitlement?

To find out your entitlement status, you’ll need to apply for your Certificate of Eligibility. The COE will spell out your basic entitlement, as well as any other VA loans you may currently have.

Can I still qualify if I don’t have a full entitlement?

You can still qualify for a VA loan if you don’t have full entitlement. The VA will guarantee up to 25% of your county’s loan limit minus the entitlement you’ve already used. If your COE shows a $0 entitlement, you will need to repay any prior loans before you can apply again.

Can I use a VA loan on more than one mortgage?

As long as you have remaining entitlement and can meet the lender’s qualifying standards, you can have more than one VA home loan at a time.

However, the second home must be a primary residence. You cannot use a VA loan to purchase an investment property.

But if you received new orders and have to move to a new base, you can use a second VA loan to buy another home.

VA home loan requirements FAQ

What do you need to qualify for a VA loan?  

To qualify for a VA home loan, you will need a Certificate of Eligibility. This shows you meet the military service requirements for this loan program. In addition, you’ll need to prove you have enough income to cover current debts and your future house payment while still having a cushion each month.

Is there a minimum credit score for a VA loan?

There is no minimum credit score for the VA loan program, though individual lenders often set their own anywhere between 580 and 620. But each lender’s guidelines vary, so make sure to shop around for the best offer from a few different mortgage companies.

Is it hard to get a VA loan?

Getting a VA loan is not hard, as long as you meet the military service requirements of the loan program. The VA encourages lenders to consider all qualifying veterans and military members who apply regardless of DTI or credit score.

What are the disadvantages of a VA loan?

VA loans are generally a very good choice when buying a home. They do have some drawbacks, though. For one, they have very strict appraisal standards, which can turn sellers off from VA-financed buyers. There are also more documentation requirements related to your military service.

What will cause a VA loan to not be approved?

Problems with the appraisal can throw off the VA home loan process, as can problems with your certificate of eligibility or any sudden income, credit report, or employment changes.

Why are VA loans bad?

VA loans are anything but bad. In fact, they’re one of the best mortgage products out there for those who qualify. They require no down payment, have lenient credit score requirements, and come with no loan limits if you have your full entitlement.

However, some financial experts would argue that because there is no down payment required, your loan amount is too high compared to the purchase price. In addition, there is an upfront fee, typically around 2.3% of the loan amount. They would argue that you should save up a 20% down payment (or even 50-70% down payment) before you buy a home. In some housing markets with low home prices and high incomes, that may be possible.

But in most markets, you would need to save for a decade or longer for even a 20% down payment. All the while, home prices are skyrocketing, putting you further behind on your down payment goal and making you miss out on five or even six figures in home appreciation. Are VA loans “bad”? We’ll let you decide that one for yourself.

Is it harder to buy a house with a VA loan? 

Some sellers may be reluctant to accept offers with a VA loan because of the VA’s property requirements. Lenders will also not approve a loan for more than a home’s appraised value. In a hot market where other homebuyers are offering well above asking price, sellers may feel safer accepting a cash or conventional offer than risking a low appraisal or repair requirements with a VA borrower.

However, you can work with your real estate agent to write a compelling offer and you may be able to reassure your seller that you’re willing to cover any necessary repairs if those come up in the appraisal.

Do you pay closing costs on a VA loan?

VA loans do come with closing costs, but exempt the veteran from paying some as well. Instead of mortgage insurance, borrowers pay an upfront funding fee of 1.4% to 3.6%. There may also be a loan origination fee; appraisal, inspection, and title fees; and other expenses associated with the mortgage. Lenders are not permitted to charge an escrow or fee, underwriting and processing fees, and others on a VA loan. Loan origintion fees are capped at 1% of the loan amount.

What is the VA funding fee for 2021?

The exact amount of the VA funding fee varies between 1.4% and 3.6% on purchase loans and new construction loans. The higher your down payment, the less you’ll pay on this fee. Most veterans will pay 2.3%, which is the funding fee required for those using a VA loan for the first time putting zero down.

VA borrowers who are using a VA loan to refinance their mortgages for the first time, or who are using a Native American Direct Loan (NADL) or buying a manufactured home, typically see lower funding fees.

Can I roll the VA funding fee into my mortgage?

Yes, the VA funding fee can be rolled into your mortgage balance and paid off over time. However, this will mean paying more in interest over the long haul. You also have the option of paying it out-of-pocket or covering it with a seller credit.

I’m ready to apply

The VA home loan is a valuable benefit for military members, veterans, and their spouses.

With no down payment requirement, flexible credit score standards, and no maximum loan limits, VA loans help military borrowers buy a home sooner (and more affordably) than might be possible with other loan options.

Ready to become a homeowner using the VA loan? Start here.

 
 

A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway 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.

VA Jumbo loans:VA loans must conform to secondary market requirements, which include the minimum 25% coverage requirement. Coverage is a combination of VA provided entitlement plus cash down payment or equity. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit standards, and loan limits. Must present valid Certificate of Eligibility (COE) at time of application. Fairway is not affiliated with any government agencies. These materials are not from VA and were not approved by VA or any other government agency.

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