Home Loans Secured by the United States Department of Veterans Affairs
What is a VA Loan?
Protecting your country in good times and bad should come with some benefits beyond sleeping on a cot and eating MREs. The United States Department of Veteran's Affairs (VA) guarantees a home loan product made just for you. Let us help you find the VA Loan that’s right for you, right now. Don’t want to wait? Go ahead and contact us at home.loans and we’ll do this thing together.
VA Mortgage Basics
VA loans are one of the perks of honorable military service, giving vets a chance to own a home of their own after a certain amount of service during war or peace time. Although not made by the Department of Veterans Affairs, the department does insure a large percentage of the value of each of these notes. This allows vets to get a break on terms like interest, down payments and even mortgage insurance, saving them a bundle over the life of their loans.
Both active duty and retired military are eligible for a VA loan after a set period of time, based on their service period. For example, Gulf War vets are required to serve at least 90 days of active duty or to fully complete the term they were ordered to active duty for without a dishonorable discharge. That group includes vets that were in service from August 2, 1990 until the present. There’s a full list of VA loan eligibility for the curious here.
What can a VA loan be used for?
VA loans are designed to provide those who serve(d) the military with good homes. The VA loans may be used for the following purposes:
Adapt a home for disability access or
There is no limit on the amount that you can borrow, but there is a limit on how much of the loan the VA loan program can guarantee. How much the VA loan program can guarantee is dependent on the county limits.
VA Loan Calculator
If you’re considering getting a VA home loan, and want to estimate your potential monthly payments, try our VA mortgage calculator. By simply inputting the loan amount and interest rate, and setting the loan program, you can get a look at what your monthly payments may look like over time. While our calculator doesn’t factor in everything (like closing costs), it’s a great way to see if a VA home loan is the mortgage solution that works best for you (and your budget!)
Since VA loans come in adjustable-rate and fixed-rate variations, our VA mortgage calculator can help you look into both of these options. And, if you’re considering refinancing your current VA loan, or refinancing a non-VA loan into a VA loan, our calculator can also give you the deets.
The home.loans VA loan calculator is a tool designed to help you get a handle on your potential monthly payments. For ease of use, it breaks your monthly estimates into principal and interest portions. Plus, you can use the VA loan calculator to help you determine other monthly expenses, like property taxes, homeowners insurance, and monthly HOA dues.
Helpful Terms for VA Mortgage Applicants
Amortization: This is a way of paying off debt using payments that consist of both principal and interest. In most cases, a fixed repayment schedule is agreed upon by both the borrower and the lender, and the amount of interest paid during each interest paying decreases over time. That means that as you go on, a higher percentage of each payment goes to paying off the principal.
Loan to Value (LTV): This is a way that lenders calculate risk before deciding to give you a loan. To calculate LTV, a lender will usually take the amount of a potential mortgage and divide it by the appraised value of a home.
Loan Term: The term of a loan, or loan term, is the amount of time for which a loan agreement remains in force. At the end of a the loan term, the loan should either be fully repaid or refinanced into a new loan.
Principal: This is the amount of money originally borrowed from the lender. Monthly payments consist of principal payments combined with interest (as well as the payment of fees, taxes, and other expenses.) As the borrower pays off the principal, it will grow smaller over time.
Interest: Interest is a specific percentage of the principal that is paid to the lender. For fixed-rate home loans, this stays the same throughout the entire loan term, but for adjustable-rate mortgages, it can vary based on changes in the market.
Annual Percentage Rate (APR): This is a calculation of interest, plus the other costs, like points, broker fees, and other charges, that you’ll pay during a year of your loan, expressed as a percentage. Because of this, your APR will almost always be more than your interest rate.
Down Payment: This is the initial cash payment you’ll make towards buying a home. Fortunately, in many cases, you can get a VA loan without any down payment.
Types of VA loans
A VA loan can have a fixed rate or an adjustable rate. It can be used to buy a house, condo, new-built home, manufactured home, duplex, or other types of properties.
Or, it can be used to refinance your existing mortgage, make repairs or improvements to your home, or make your home more energy efficient. The choices are yours. A VA-approved lender can help you decide.
Home Purchase
A VA loan can be used to buy an existing home or a condominium in a VA-approved development, or to build a home.
VA Loan Refinancing Options
VA home loans also come with unique refinancing solutions. These refinancing packages are specifically meant for VA-guaranteed mortgages, with benefits that can't be found for other home loan refinancing packages. Learn more about these below.
VA Streamline Refinancing
Also known as the Interest Rate Reduction Refinance Loan (IRRRL), the VA streamline refinancing solution is designed to reduce the interest rate and monthly payment on a VA loan. Benefits include no required credit or appraisal underwriting, and often no out-of-pocket expenses.
Interest rate reduction refinance loan: A VA IRRRL (which is pronounced “Earl”) is also called a streamline refinance loan. You can replace an existing VA loan with a mortgage offering a lower interest rate, or move from an adjustable-rate loan to one with a fixed interest rate.
VA Cash-out Refinancing
Convert home equity into cash with the VA-secured cash-out refinancing option. It keeps the benefits attached to standard VA loans, and allows non-VA loans to be refinanced into VA loans.
A VA cash-out refi replaces your mortgage with a new loan, while tapping some of your home’s value for things like paying off debt or making home improvements. It also can be used to replace a non-VA loan with a VA loan.
Native American Direct Loan program
This helps qualified Native American veterans buy, build, improve, or refinance a home located on federal trust land.
Adapted housing grants
These help veterans with service-related disabilities purchase, build, or modify homes for better livability.
How Big of a VA Loan Can Veterans & Military Personnel Get?
According to the VA there is “no maximum that an eligible veteran may borrow using a VA-guaranteed loan.” However, there are county limits that must be used to calculate the VA’s maximum guaranty amount for a particular county. In other words, there’s no limit to how much you can spend on your new home with a VA loan, but the VA has limits on how much liability it will assume, which can affect the amount of money your lender will let you borrow.
Generally, eligible veterans or military personnel can get loans up to $417,000 with no money down. But that number can be much higher in certain counties that have a higher cost of living. Ask your lender about county limits for VA loans.
Pros and Cons of VA Mortgages
VA loans are one small show of thanks from the government to the veterans that defend it, and because of that, there are very few drawbacks to procuring one. In fact, if you’re a vet and you’re thinking about buying a home, a VA loan is likely your very best option. But, let’s break down the pros and cons of the VA loan anyway.
Benefits of the VA Loan
There’s a reason why the VA loan comes with such favorable terms. The federal government guarantees that a portion of the loan will be repaid to the lender even if you’re unable to make monthly payments for whatever reason.
This guarantee encourages and enables lenders to offer VA loans with exceptionally attractive terms to borrowers that want them. VA loans are neither originated nor funded by the VA. Furthermore, mortgage rates for VA loans aren’t set by the VA itself. Instead, VA loans are offered by U.S. banks, credit unions, mortgage lenders, private lenders, and other financial institutions — each of which sets its own VA loan rates and fees. This means you can shop around and compare loan offers and still choose the VA loan that works best for your budget.
One of the best perks of a VA mortgage loan are the flexible qualifications. Both the debt-to-credit ratio and the credit score requirements of the borrower are incredibly flexible and largely at the discretion of the lender. VA encourages lenders to “review the entire loan profile to make a lending decision.”
Low down payments. For the most part, VA loans are zero down. If you want to provide a down payment, you certainly can, since it’ll reduce your overall payment. That can be great for a lot of other reasons.
No mortgage insurance. VA loans don’t have private mortgage insurance. They do have funding fees, which are typically from 1 to 4 percent of the total loan amount, depending on several factors including which branch you served in and for how long.
Down payments aren’t required unless the purchase price is more than the appraised value of the property or it’s higher than the local VA loan limit. Other perks include:
Mortgage rates are typically lower than rates on conventional loans
Counseling is available to help borrowers retain a home through serious financial difficulties
You can reuse your VA loan benefit
VA loans limit the amount you can be charged for closing costs
You don’t have to be a first-time home buyer
VA-backed loans can be assumable — this means they can be taken over by someone you sell the house to, even if that person isn’t a service member
A bankruptcy discharged more than two years ago — and in some cases, within one to two years — will not preclude you from getting a VA loan
A VA loan won’t restrict your right to sell your home if you decide you no longer want to own it. There’s no prepayment penalty or early-exit fee no matter within what time frame you decide to sell your home. Furthermore, there are no restrictions regarding a refinance of your VA loan.
Drawbacks of the VA Loan
Providing Certificate of Eligibility. This is really more of a minor inconvenience, but you still have to do it. You’ll need a Certificate of Eligibility to show how much of a benefit you qualify for. Often, your lender can get this for you, but you may have to contact the VA directly. Do it before you apply because it can take a while.
May be subject to lender overlays. Although the VA just wants to give you a loan, some of the lenders it insures are less free with their money. They may impose additional rules on top of the very flexible rules of the VA. It might make financial sense to shop this loan around a bit.
Subject to upper loan limits. For many vets, the upper loan limit of $453,100 in most areas will be far more house than they intend to purchase. Still, if you’re in an area where prices are rising faster than the VA’s formulary, it could be an important factor to keep in mind.
Who’s the Ideal Borrower for the VA Loan?
There are only two kinds of borrowers who can get a VA loan: active duty military and retired military. However, there's on exception -- surviving spouses can also use the benefit if it hasn’t been used yet and they never remarried. So, the ideal borrower for a VA loan:
Has dedicated a significant portion of their life to the United States military.
Wants to buy a home and put much of their payment toward principal.
Does not necessarily have much saved for a downpayment.
Intends to stay put for a while, since the VA loan rate is pretty amazing.
VA Loan Eligibility Requirements:
Contrary to popular belief, VA loans are available not only to veterans, but also other classes of military personnel. The list of eligible VA borrowers includes active-duty service persons, members of the National Guard, Reservists, surviving spouses of veterans, cadets at the U.S. Military, Air Force or Coast Guard Academy, midshipmen at the U.S. Naval Academy, and officers at the National Oceanic & Atmospheric Administration. A minimum term of service is typically required.
Both active duty and retired military are eligible for a VA loan after a set period of time, based on their service period. For example, Gulf War vets are required to serve at least 90 days of active duty or to fully complete the term they were ordered to active duty for without a dishonorable discharge. That group includes vets that were in service from August 2, 1990 until the present.
The loans are available to military personnel that are currently serving, those who have been discharged, and those who have retired. Your eligibility for a VA loan is determined by the length of service and character of your service. In general, the following criteria qualifies you for a VA loan:
Active personnel who have actively served for at least 90 days during wartime
Personnel who have served actively for at least 180 days during peacetime
Personnel who have 6 years of service in the National Guard or Reserves
If you are a spouse whose partner died in active service or from an injury acquired during service
You are active-duty military.
You were separated from military service in a situation “other than dishonorable discharge”
As a veteran or active military, you meet specific length-of-service requirements
You are a reservist or a member of the National Guard
You are a qualified surviving spouse of a deceased veteran
In addition, there are these requirements:
The home must be your primary residence
You must have a valid certificate of eligibility from the VA
Although the VA has no minimum credit score requirement, most lenders do
If you are a military man or woman who doesn’t fit into the descriptions above, don’t be discouraged, because you may still qualify. The VA loan program has an extensive list of beneficiaries with varying qualifications.
VA Fees and Lender Fees
The VA limits the amount of fees the lender can charge. This is a great benefit to the VA loan. However, there are still quite a few fees associated with a home purchase. These fees include:
VA Upfront Funding Fee
This fee goes directly to the Veterans Administration to defray the costs of the VA program. This is not a fee that is generally paid for in cash at closing, because usually VA homebuyers opt to finance it into their loan amount. If the fee is wrapped into the loan amount, it does not increase the total amount of money needed to close the loan.
Although the costs of getting a VA loan are generally lower than they are for other types of low-down-payment mortgages, they still carry a one-time funding fee that varies, depending on the down payment and the type of veteran.
A borrower in the armed forces getting a VA loan for the first time, with no money down, would pay a fee of 2.15 percent of the loan amount, Frueh says. 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. And if you receive disability compensation for service connected disabilities, the fee is waived.
1% Origination Fee
An origination fee is a fee charged by a lender on entering into a loan agreement to cover the cost of processing the loan. The VA caps these fees for VA loans to 1% of the loan amount.
Discount Points
Discount points are also called mortgage points or simply points. Discount points are a type of prepaid interest available in the United States when arranging a mortgage, where one point equals one percent of the loan amount. The VA rules state that discount points can be paid by the veteran just as long as the fee goes directly to reducing the interest rate. Discount points are different from the origination fee. Instead of compensating the lender, this money is used to buy a lower interest rate.
Third Party Fees
Organizations that are involved in a home buying transaction, like appraisers, title and escrow companies, and credit agencies are third parties. These companies charge fees as part of the home buying process. Here are some of the most common fees:
Appraisal
The lender will want an appraisal of the property you want to buy. This helps them determine how much loan you need. Your lender will select an approved VA appraiser who will not only determine the value of the house and property, but also make sure it makes minimum VA property requirements.
Title Report/Title Insurance Policy
Title fees can vary a lot. They’re based on a variety of factors including geographic location, the purchase price of the home, and the loan amount. In other words, title fees for a less expensive property will be less than those for a high purchase price.
The title report ensures that no one else can claim ownership of the property. The title report and title insurance protects you and the lender in case there’s an instance in the future where someone attempts to claim ownership rights to the house.
Recording Fee
Recording fees are set by the home’s county or jurisdiction location. These fees are paid to enter the sale or refinance into public record. This way, the county or jurisdiction is aware of which lending institutions have loans out on the home, who is responsible for paying taxes on the property, and so forth.
Credit Report Fee
Your lender will pull a credit report to determine your credit history, and these are the fees associated with obtaining your official credit score. Ordinarily, the report will show one score for each of the three credit bureaus: Equifax, Experian, and Transunion. Then, the lender will usually use the middle score.
Flood Certification
The lender will want to know if the property is in a flood zone. This “flood cert” determines whether the property is in a flood zone. Although most properties aren’t, you’ll need flood insurance if the home you want to buy turns out to be in a flood zone.
Survey Fee
These fees pay for a surveying company. The property will be surveyed to determine where all the physical property lines are located.
Attorney Fees
As a veteran, you’re not responsible for paying an attorney for anything other than title work. However, an attorney can help in a variety of situations including timely closing, as well as interpreting and negotiating the sales contract.
Fees Not Allowed to be Charged to the Veteran
Some fees are not allowed to be charged, per VA loan guidelines. These include:
Attorney Fee
If for anything besides title work.
Escrow Fee/Settlement Fee/Closing Fee
The VA does not allow the veteran to pay an escrow fee. The escrow fee varies greatly and can be quite expensive, so this is a great benefit to the VA loan. Although the veteran does not pay for the escrow fee, it’s good to know what the escrow company does.
The escrow company is responsible for collecting and distributing all monies involved in the transaction. Escrow will receive the earnest money, any wired amounts from banks, down payments from the buyer, closing cost assistance from the seller, etc. The escrow company then divvies out the money to the appropriate parties — real estate agent commission checks, a wire paying off the existing loan on the house, a wire to the seller for any proceeds from the sale, etc.
In addition, the escrow company makes sure all parties sign all the final loan documents and sale documents. When it’s all said and done, escrow records the sale with the appropriate jurisdiction, such as the county government.
Closing Protection Letter (CPL)
The CPL fee is often included in the escrow fee but sometimes charged separately. It is a letter that makes the title company responsible if escrow does not appropriate loan proceeds correctly.
Document Preparation Fee
Fee charged by escrow for preparing final loan documents.
Underwriting Fee/Processing Fee
Fees charged by the lender for processing and underwriting the loan.
Lock-in Fees
Fees charged by the lender to lock the interest rate.
Courier Fee/Postage Fees
Sometimes there are original documents that need to be hand-carried or sent via overnight service, and can’t be emailed or faxed. In this case, the escrow company will often charge a courier fee to ensure these services are paid for. The veteran is not allowed to pay these fees; they must be covered by the lender.
Notary Fees
Fees charged by escrow to send a notary to the borrower for a signing appointment outside escrow’s office.
Application Fee
This is a fee the lender sometimes charges up front before the borrower takes an application. This is not allowed on VA loans.
Tax Service Fee
This fee is paid to the mortgage company to ensure they pay the real estate taxes.
Mortgage Broker Fee
Sometimes charged by mortgage brokers when they broker a loan out to the lender.
This list of allowable and non-allowable fees above is not all-inclusive and there may be other fees on your purchase transaction that are not listed here. In that case, it’s best to contact your VA lender to find out if the charge is allowable on VA loans.
What if I Want to Move After Getting a VA Loan?
Once you’ve used your Certificate of Eligibility, it’s used. You can get it back, but you either have to sell the home that’s tying it up or find another veteran who is willing to assume your loan and transfer their entitlement, freeing up yours. When you’re ready to set down roots for a while, that’s when it’s time to whip this loan out. If you still have some traveling to do, or you’re on active duty, it might be wise to wait a little longer to use it.
VA Loan Refinancing Options
VA home loans also come with unique refinancing solutions. These refinancing packages are specifically meant for VA-guaranteed mortgages, with benefits that can't be found for other home loan refinancing packages. Learn more about these below.
VA Streamline Refinancing
Also known as the Interest Rate Reduction Refinance Loan (IRRRL), the VA streamline refinancing solution is designed to reduce the interest rate and monthly payment on a VA loan. Benefits include no required credit or appraisal underwriting, and often no out-of-pocket expenses.
VA Cash-out Refinancing
Convert home equity into cash with the VA-secured cash-out refinancing option. It keeps the benefits attached to standard VA loans, and allows non-VA loans to be refinanced into VA loans.
The VA Mortgage: In Review
VA loans are designed to do one thing, and do it very well. They’re in place to ensure military veterans are at least partially protected from the whims of the housing market after they’ve done their duty. VA loans are great mortgages, so get one if you can.
Despite the advice we may give here at home.loans, not every loan is perfect for every borrower. There are definitely special cases and lots of “what ifs” that rattle around the edges. When you hit one, just contact us. It’s free and we’re always happy to help!
VA Loan Knowledge Base
An assumable Mortgage is a home loan that can be transferred from the seller to be taken over or “assumed” by the buyer, becoming their responsibility to pay off. Of course, this requires the approval of the lender servicing the loan, and even then, not all loans are assumable.