VA Loans: What to know before applying
If you or a loved one has proudly served our country, you might wonder if that experience can help you buy a home.
It sure does — with the VA home loan program, administered by the Department of Veterans Affairs (VA).
It's important to note, however, that the VA doesn't directly provide the loan. Borrowers still need to apply for mortgage lending and refinancing through private lenders, like the team here at Movement.
What the VA does do is guarantee a portion of the loan, known as the VA loan entitlement. VA entitlement doesn't automatically guarantee loan approval. Like any other home loan, lenders evaluate various factors such as the borrower's credit history, income, debt, savings, retirement and investment accounts.
Let's look at 7 things you ought to know about VA loans.
1 - Am I eligible for a VA loan?
If you're a US veteran, active-duty service member, a National Guard member or reservist, or the surviving spouse of a veteran, you may be eligible to apply for a VA loan.
Once you meet some basic requirements set up by Veterans Affairs, you'll get a Certificate of Eligibility (COE) that proves you're eligible for VA benefits. Show the COE to your lender, and you're one step closer to VA home financing. It's as simple as that!
2 - Do I need a perfect credit score for a VA loan?
Concerns about credit score requirements often weigh heavily on prospective homebuyers. However, here's some reassuring news: VA loans don't impose any specific credit score requirements.
While the VA loan program itself doesn't establish a minimum credit score, individual lenders do set their own criteria. For instance, at Movement, we have a minimum FICO score requirement of 580 for VA loans. This flexibility provides applicants with greater chances of qualifying. It's worth noting that different lenders may have different credit score requirements.
Remember, it's important to understand your credit score's role in determining your interest rate and loan terms. The higher the score, the more likely you'll be offered more favorable rates and conditions.
To see your real-time credit score ask for a complimentary credit report. This report compiles info from the three major credit bureaus: Experian, Equifax, and TransUnion.
3 - How much down payment do I need?
Coming up with a down payment for a new home often keeps people from taking the leap from renter to homeowner in the first place. But VA loans allow for 100% financing of a property, meaning no down payment is required for eligible applicants.
And because a VA loan comes with a 25% lender guarantee, PMI (private mortgage insurance) is not required either.
4 - Do I have to save up for closing costs with a VA loan?
Like many loan programs, VA loans also have standard closing costs and fees. These include fees commonly found in most loans, such as appraisal costs, title search expenses, title insurance fees, recording fees, and other charges from the lender.
There's one particular fee that is specific to VA loans, called the VA funding fee. This fee is paid directly to the VA and helps keep the loan program running. The amount of the VA funding fee is determined by several factors and is based on the amount being borrowed, not the home's purchase price. Additionally, if this is the first time you're using the VA benefit, your funding fee will be less than if you're using it for a second time.
To avoid paying the VA funding fee out of pocket, you can try to negotiate with the seller to cover this fee or roll the amount into your mortgage and pay it off over the entire loan period.
On top of that, you won't have to pay a VA funding fee if you're receiving VA compensation for a service-connected disability, if you're on active duty, and — before closing the loan — you provide evidence of having received the Purple Heart, plus a variety of other factors. Speak to your VA group to determine if you can avoid paying the fee.
5 - Can I use my VA loan benefit more than once?
Also, keep in mind that your entitlement, which is the amount the VA guarantees for your loan, has a limit. Once you've used up your entitlement, you can only take out another VA loan once your entitlement is restored.
Typically, restoring your entitlement involves selling the home that was financed with the VA loan. But here's the good news: the VA offers a one-time entitlement restoration for those who have completely paid off their VA loan but still own the property or have switched to a different loan, like a conventional one.
6 - Can I have two VA loans at the same time?
While VA loans are intended for primary residences, it's common for active service members to change their primary residence, especially due to PCS (permanent change of station) orders.
Let's say, for this example, you use a VA loan to purchase your primary residence. If you receive PCS orders and need to relocate, you can apply for another VA loan to buy your next primary residence, provided that your entitlement — the maximum amount the VA would pay your lender if you default on your loan — covers both homes. This allows you to keep your previous home and turn it into a rental property, generating additional income while retaining your original VA loan.
Naturally, you'll need to qualify for the second VA loan, and the amount you'd be able to borrow the second time around would be limited based on your remaining VA loan entitlement.
7 - Can I buy undeveloped land with a VA loan?
While a VA loan doesn't directly permit land purchase alone, it offers an opportunity to buy land for future construction. This means you can use a VA loan to acquire land if you simultaneously finance the land costs and construction expenses of your new home.
Alternatively, you can secure a different type of loan to finance the land costs separately and then use a VA loan specifically to fund your home's construction on that land.
Or you could finance both the land and home construction through alternative means, such as a short-term construction or bridge loan. Once the home is built, you could refinance into a VA loan.
More questions? We can help!
Don't let any unknowns hold you back from exploring the benefits you've earned from your time in the service.
Find a loan officer in your area to learn more about VA loans and take advantage of your available VA benefits.
*Movement Mortgage is not affiliated, endorsed, or sponsored by the Department of Veterans Affairs or any government agency.