How Do VA Loans Work? An In-Depth Guide to VA Loans

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May 3, 2023

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Are you feeling discouraged and outpriced by the real estate market? If you’re a homeowner, real estate investor, or home buyer with military service under your belt, you may have heard about VA home loans. The Department of Veterans Affairs (VA) supports these VA loan benefits, which provide multiple advantages to eligible service members, veterans, and surviving spouses to secure affordable financing for their dream homes.

If you’ve wondered how VA loans work and how you can take advantage of these benefits to finally get into the home you’ve always dreamed of, you’re in the right place! In this blog post, we will delve into the benefits of VA home loans and discuss the requirements that must be met in order to qualify. We’ll also walk you through key points of the application process, including obtaining your Certificate of Eligibility (COE).

The Benefits of Using a VA Home Loan

If you’re eligible for a VA loan, there are numerous advantages to using this type of financing over conventional loans.

No Down Payment Requirement

One of the most significant benefits of VA loans is that they do not require a down payment. This can be especially beneficial for those who may not have enough saved up to make a traditional 20% down payment, making it easier for veterans and service members to purchase homes without having to wait.

By eliminating the need for upfront cash, more veterans and service members can afford to buy homes without waiting years to save up funds.

Lower Interest Rates

VA loans generally offer lower interest rates than conventional mortgages due to their government backing. The Department of Veterans Affairs guarantees these loans, which means lenders face less risk when issuing them.

As a result, borrowers often enjoy better terms and conditions with VA loans, including competitive interest rates that can lead to substantial savings over time.

No Private Mortgage Insurance (PMI)

With conventional mortgages, if your down payment is less than 20%, lenders typically require private mortgage insurance (PMI) as part of your monthly payments. PMI protects lenders if borrowers default on their loan obligations but adds extra monthly costs for homeowners.

Fortunately, with Associates Home Loan in Florida, there is no requirement for PMI for VA borrowers, which can save borrowers thousands of dollars over the life of their loan.

Easier Qualification Standards for a VA Loan

Another benefit of a VA loan is that it has more lenient qualification standards than conventional mortgages. For example, VA loans generally have lower credit score requirements than traditional financing options. This makes it easier for veterans and service members with less-than-perfect credit histories to secure a mortgage and purchase a home.

Limited Closing Costs

Closing costs can add up quickly when purchasing a property, but with VA home loans, these expenses are capped by law. This means eligible borrowers won’t face excessive fees or surprise charges at closing time.

Additionally, the seller may even cover some closing costs as part of negotiations between both parties during the transaction process.

Assumability Feature of VA Mortgages

A unique feature of a VA loan is its assumability – meaning that if you decide to sell your property in the future, an eligible buyer can assume (take over) your existing mortgage under its current terms and conditions without having to obtain new financing.

This advantage can make your property more attractive on the market and potentially lead to faster sales or better offers from prospective buyers.

VA Loan Eligibility

To qualify for a VA home loan, applicants must meet specific eligibility requirements set forth by the Department of Veterans Affairs. Some key criteria include the following:

  • Serving on active duty for at least 90 consecutive days during wartime or 181 days during peacetime;
  • Serving six years in the National Guard or Reserves; or,
  • Being the surviving spouse of a veteran who died while serving or from service-related injuries.

Reservists and National Guard personnel may be eligible for a VA home loan if they have completed six years of service or 90 days of active duty in wartime.

VA Loan Limits and Funding Fees

The maximum amount that can be borrowed through a VA home loan depends on various factors such as location and credit history. However, loan limits were eliminated for most veterans starting in 2020 – meaning qualified borrowers can now secure larger mortgages without making down payments.

In order to qualify, you must have what’s called “full VA loan entitlement,” which means one of the following:

  • You’ve never used your home loan benefit
  • You’ve paid a previous VA loan in full and sold the property
  • You’ve used your home loan benefit but had a foreclosure or short sale and repaid in full

In addition to these changes in loan limits, funding fees – which help cover costs associated with defaulting – also vary depending on several factors, including the borrower’s military service and whether it’s their first time using a VA loan. These fees can be rolled into the total loan amount or paid upfront at closing.

Working with a VA Lender

To obtain a VA home loan, you’ll need to work with an approved VA lender.

At Associates Home Loan, Inc., we have experience navigating the unique requirements of VA loans and can help guide you through the application process. In addition, we will work with you on competitive interest rates and terms to meet your needs and get you into your new home!

Credit Score Requirements

No set minimum credit score is required by the Department of Veterans Affairs, but individual private lenders typically have their own criteria. Generally, borrowers should aim for a good credit score (670+) to increase their chances of approval.

At Associates Home Loan, Inc., we generally like to see a credit score of 620 for a VA home approval. However, we specialize in finding solutions for alternative financing and low or bad credit.

So if this seems like a reach, we have guidance on how to fix your credit score, and we may also have other loan products that might interest you. It’s worth giving us a call to discuss your options.

Applying for a VA Home Loan

After you determine your eligibility, there are a few extra unique steps for the application process for a VA home loan, which we’ll walk you through here.

Obtain Your Certificate of Eligibility (COE)

Once you’ve determined that you’re eligible to apply for a VA home loan, obtain your Certificate of Eligibility (COE). The COE verifies your military service history and confirms that you meet the necessary criteria to apply for this type of financing.

You can request a COE directly online, through your lender, or by mail.

If you’re a surviving spouse, you will also need to obtain a COE through a separate process.

Choose an Approved VA Lender

To ensure the smooth processing and approval of your application, Associates Home Loan of Florida Inc. will facilitate the application process and answer any questions you have.

Gather the Required Documents

You guessed it – the next step is more paperwork! Pull together all the application materials. This will include:

  • Your Credit score: Although there isn’t a specific minimum credit score required for VA loans, most lenders require a credit score of at least 620. However, some may approve borrowers with a low credit score. Associates Home Loan, Inc. can handle pulling your credit. Let us know if you have any concerns.
  • Your Credit history: We will review your credit history to determine your ability to repay the loan. We’ll look for any late payments or collections and consider factors like debt-to-income ratio (DTI) and employment stability.
  • Your Military service records: You’ll need to provide proof of military service, such as your DD Form 214 or Statement of Service Letter from your commanding officer.

Feel free to compile other documents you think might be helpful so you can have them on hand. This can include previous taxes you’ve filed, income statements, or any financial assets or savings.

We will also give you a list of documents we’ll need to see that are unique to your borrowing history and individual finances.

Complete the Loan Application

Once you’ve gathered all the necessary documents, you’ll work with us to complete the Loan Estimate, which provides an overview of the loan terms and estimated costs associated with obtaining a mortgage.

Be sure to look at everything for accuracy, including your name. Also, check the loan terms to make sure you understand them, and look at the estimated monthly tax payments and closing costs so you have a clear understanding of them.

After reviewing this information carefully, submit it along with other documentation that we’ve requested.

The Role of a VA Appraiser

We will then review your application materials before issuing approval or denial based on the assessment criteria. If approved, we’ll order an appraisal through an authorized VA appraiser. This professional will assess your prospective home’s value while ensuring it meets specific safety standards required by Veterans Affairs.

If any issues are identified during this appraisal process – like structural damage or outdated electrical systems – repairs must be made before obtaining financing through a non-VA loan option.

Await Your Approval and the Closing Process

Once the appraisal process is completed successfully without issues related to home equity or property condition, we can proceed toward closing on the loan!

Call Us Today to Discuss Your Loan Needs

VA home loans offer an attractive option for veterans and active duty service members who wish to own a house, with competitive rates and minimal closing costs. Additionally, the flexible terms of VA loans provide borrowers with added security in case of financial hardship or other unforeseen circumstances.

If you’re considering purchasing a home and have served your country honorably, please reach out to us today to discuss your options! Take advantage of Associates Home Loan‘s expertise in VA loans to get the best terms and conditions for your home loan. Get started now by contacting our team of experts, who can guide you through the entire process.

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