What is a VA loan?
VA financing is a great option for veterans and military personnel looking to buy a home, but it does come with some restrictions.
First and foremost, VA loans cannot be used to purchase vacation or investment properties. Furthermore, any home you buy with proceeds of a VA loan must become your primary residence.
Certificate of Eligibility
A Certificate of Eligibility is the first step in qualifying for a VA Loan. This document proves that you have met certain eligibility requirements, such as the service time required.
Applying for a Certificate of Eligibility (COE) is simple, whether online or by mail, taking approximately four to six weeks depending on how quickly your application is submitted.
The Certificate of Eligibility contains your name, Social Security Number, branch of service, and any loans that have been charged against your entitlement. In addition, there will be a two-digit entitlement code identifying when and why you may qualify for a VA loan.
Your COE informs lenders whether or not you`ve used VA benefits before and whether a funding fee applies to this new loan, while also listing Minimum Property Requirements, also known as MPRs, that help ensure your new home meets certain safety, structural soundness and sanitary criteria.
Minimum Property Requirements
The VA has established strict minimum property requirements that must be met by your home before it can qualify for a VA Loan. These standards make sure that your home meets the basic criteria for safety, sanitation and structure to be suitable for residential use.
If the home does not meet Minimum Property Requirements during an appraisal, VA could request you to fix it prior to being approved for mortgage loan approval. You may be required to sign a repair contract, but you can opt out if needed.
Residential MPRs include space and accessibility requirements. Your home must offer sufficient room for living, sleeping, cooking and eating as well as having functional sanitary bathrooms that meet these standards.
If your home is located in an area that has a high risk of flooding, you must purchase flood insurance before the VA will approve your loan. This requirement does not apply if it falls within one of FEMA zones B, C or X.
Credit Score
Are you a Veteran or Active Service member considering VA Loans? VA loans are government-backed mortgages which enable home buyers to purchase or refinance with lower down payments and interest rates than conventional loans.
However, due to the VA guaranteeing these loans partially themselves. Credit is required to get one.
Private lenders also establish minimum credit score requirements before providing loans, typically between 580 and 660.
Mortgage lenders frequently utilize your Debt to Income ratio (DTI ratio) as a metric to evaluate whether or not you can afford your monthly payments. This percentage measures how much debt (including your mortgage payment) you owe relative to income.
Pay Down Payment
VA borrowers typically do not make down payments when buying homes; however, there may be occasions where it would be wise to put some money down as part of the purchase price, such as during a seller`s market or to improve chances of approval for loans.
You can qualify for lower mortgage payments, better interest rates and refinancing options by making a down payment.
The VA funding fee is usually lower for home buyers who make down payments than for non-VA borrowers. This fee supports the VA loan program, and encourages lenders and banks to offer loans at lower interest rates with easier qualification guidelines.
VA mortgage borrowers also enjoy other advantages offered by these loans, including no mortgage insurance (MI). MI can cost hundreds of dollars per month. VA loans do not include it.