VA Home Loans

What is a VA Home Loan?

VA home loans are guaranteed by the U.S. Department of Veterans Affairs. They were created by the government in 1944; since then, more than 24 million VA loans have been originated, helping veterans, active duty military members, and their families purchase or refinance a home.

The fact that these loans are backed by a government agency makes lenders feel more comfortable in offering them, as they pose less risk. As a result, it's possible to get a VA loan without a down payment, and with sometimes-looser credit requirements. The basic intention of the VA home loan program is to supply home financing to eligible veterans and to help them purchase properties with no down payment.

How to Qualify for a VA Home Loan

• Have at least 90 consecutive days of active service during wartime or at least 181 consecutive days of active service during peacetime.
• Have more than six years of service in the National Guard or Selective Reserve.
• Be the surviving spouse of a service member who died while on active duty or from a service-connected disability, and have not remarried (or remarried after age 57 or Dec. 16, 2003). Spouses of prisoners of war or service members missing in action are also eligible.
• Meet the lender's requirements for credit and income. The VA doesn't set a minimum credit score, but lenders can set their own standards.
• Show you have the income to make mortgage payments without a huge debt load.
• While there is no minimum credit score requirement, borrowers might have a hard time getting approved without at least a 620 FICO Score.
• The property must meet safety standards and building codes and will be your primary residence.
• Obtain a VA Certificate of Eligibility (COE) — without it, you won't be able to get your loan.

Benefits of a VA Home Loan

• Buy a home with no down payment.
• No limit to the amount you can borrow.
• No Private Mortgage Insurance (PMI), since the loans are backed by the government.
• The VA limits the lender's origination fee to no more than 1% of the loan amount and prohibits some other closing costs.
• No minimum credit score requirement.
• Mortgage rates are typically lower than FHA and conventional mortgages.
• Assistance is available for struggling borrowers facing potential foreclosure.
• No prepayment penalty.
• You don't need to be a first-time home buyer — the benefit can be used again and again as long as you pay it off each time.
• Bankruptcy or foreclosure won't permanently affect your chances; you can still qualify after two years have passed.

Disadvantages of a VA Home Loan

• You're required to pay a VA loan funding fee between 1.25% and 3.3% of the loan amount, usually included in the loan, which increases your monthly payment and the interest paid over the life of the loan.
• A VA loan can only be used to buy or build a primary residence or to refinance an existing loan — you won't be able to buy an investment property or vacation home with one.