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How To Apply For a VA Home Loan – What’s The Benefit of it?

Home ownership is much more possible for Veterans with a VA Home Loan

As Veterans, one great benefit that we have is the ability to qualify for a VA Home Loan. However, VA loans are not for everyone, so you must do your research and make sure that it is the right choice. Today, not only will I be discussing How to apply for a VA Home Loan, but I will also be covering the following:

  1. How to determine if you are eligible.
  2. How to apply for a certificate of eligibility.
  3. Credit and income requirements.
  4. VA Funding fees, Loan Limits, and types of property eligible.
  5. Veteran mortgage relief.
  6. Assuming a VA loan.
  7. Top ten VA Home Loan benefits.
  8. When NOT to use a VA Home Loan.

Am I eligible for a VA Home Loan?

Woman holding her hands up and a questioning look on her face

VA Home Loans are available to Veterans and military members alike, and once you are eligible for the VA Home Loan program, your eligibility never expires. To be eligible, you must fall into at least one of these categories:

1. Active-Duty, Reserve, or National Guard member (unless you were dishonorably discharged)

2. Veterans

3. Surviving spouses of Veterans (with exceptions)

4. Cadets and Midshipmen at a military academy.

5. Officers at the National Oceanic and Atmospheric Administration.

6. Public Health Service Officer.

7. Merchant seaman during World War II

Along with falling into one or more of those categories, you must also meet at least one of these service requirements:

1. At least 181 days of active duty service during peacetime or at least 90 days of active-duty service during wartime.

2. At least six years in the National Guard or Reserves.

3. Your spouse was killed in the line of duty, AND you have NOT remarried.

How to Apply for your Certificate of Eligibility

So, your eligible for a Certificate of Eligibility (COE), excellent! Let’s talk about that. Right now, you probably have a ton of questions like what is a COE? Why do I need a COE? Does this mean I am guaranteed a loan? How do I apply for it? Well, here are the answers you’ve been seeking!

A COE is simply a form that serves as proof to lenders that you are eligible for a VA home loan. Your lender can typically get one for you online in a matter of seconds through the VA’s automated system. If you want to order your own, you can do so through your eBenefits portal.

A COE does NOT guarantee your VA loan approval. You must still qualify for the desired loan through their VA mortgage guidelines. The “Guarantee” means the VA will repay the lender the specified amount if you default on your loan.

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What are the Income and Credit Requirements for a VA Home Loan?

Even though you are eligible for a VA loan, that does not mean that you qualify for one. The VA has some qualification requirements, specifically based on your credit, debt, and income. Folded piece of paper showing the number 520

The VA has not established a minimum credit score requirement, but many VA mortgage lenders want you to have a 620 or higher FICO score. The VA’s underwriting guidelines require that the applicant has remained current and paid their obligations on time for the most recent 12 months preceding the loan. You will also have to wait two years after filing Chapter seven bankruptcy and, for Chapter 13 bankruptcy, you must make at least 12 on-time payments and get approval from your bankruptcy court.

Determine your debt-to-income (DTI) ratio by taking all of your monthly debt (including the new mortgage) and dividing that amount by your monthly gross income (before taxes). For example, if you pay $2,000 per month in bills and make $4,000 per month in pay before taxes, your DTI would be 50% (2,000/4,000). If your DTI is above 41%, you may need to use additional income sources to qualify.

VA Funding fees, Loan Limits, and types of property eligible

VA Home Loan can save you a lot of money but there are possible fees.

To help defray the costs of this program, the VA charges an up-front fee. This fee varies based on the loan’s purpose and down payment. The fee is paid as a lump sum and is typically wrapped into the loan. Note that you will not have to pay a funding fee if you:

  • Have a service-connected disability for which you are receiving VA compensation, or you are eligible for VA compensation because of a service-connected disability but are getting active-duty or retirement pay instead.
  • Are receiving Dependency and Indemnity Compensation as the surviving spouse of a Veteran who was totally disabled or died in service or from a service-connected disability.
  • Receive a proposed or memorandum rating before the loan closing date, verifying that you are eligible for VA compensation because of a pre-discharge claim.
  • Are a recipient of the Purple Heart.

VA loan limits in 2020

The Blue Water Navy Vietnam Veterans Act of 2019 has virtually eliminated loan limits as far as the VA is concerned. However, each lender may have limitations. You should check with your lender if your loan amount is above local conforming limits.

Eligible property types

You can utilize a VA loan to purchase a detached house, a condo, a manufactured home, a multi-unit property, or a newly built home. You can also use a VA mortgage to refinance any of those property types.

Federal regulations limit VA loans to purchase or refinance a “Primary Residences” only. However, the home in which you spend “most of the year” is considered your “primary residence.” So, if you own a home and want to purchase a second home somewhere else, you can do so. As long as you intend to live in the second home for at least six months of the year, it would be considered your “primary residence” and thereby be eligible for VA loan financing options. Also, you cannot buy a rental property with a VA loan. However, you can use a VA loan to refinance a home you once lived in and now rent out as an income property.

Picture of a densely populated housing area.

Similarly, you can buy a duplex, triplex, or quad-plex with a VA loan, but you must live in one of the units. There are some additional underwriting requirements for buying a multi-unit home with a VA loan. If you want to know more about this, you can check the VA’s website. The VA also keeps a schedule of thousands of condo units across the U.S. approved for you to buy with a VA loan. If you are looking for a condo and want to use a VA loan to finance it, make sure it is approved. If it isn’t, you will have to forego VA financing.

Veteran mortgage relief with the VA loan

The VA can assist you with retaining your home in some instances. If you are struggling to make your mortgage payments, the VA will work with loan providers to develop mutually agreeable repayment options and prevent foreclosure. This program has saved American taxpayers an estimated $2.6 Billion and, more importantly, helped over 100,000 Veterans retain their homes!

Assuming a VA Home Loan

Another option that is sometimes appealing is to assume an existing VA loan. There are a couple of ways you can do this. One way is that a qualified buyer can “exchange” their VA eligibility for the seller’s eligibility. The other way, to qualify through VA standards for the mortgage payment. The lender and or the VA must approve the VA loan assumption. This process could be quick if the lender has automatic authority but could take several weeks to send it to the VA for processing.

If you assume a VA loan, your loan servicer’s responsibility is to ensure that you meet all requirements for the assumption. Those requirements include:

  1. There must not be any past due amount on the existing loan at closing.
  2. The purchaser must meet VA credit and income qualification standards and assume all mortgage obligations.
  3. The new owner or the original owner must pay 0.5% of the existing principal loan balance as a VA funding fee.
  4. Advanced payment of fees for processing and the credit report is required.

Top Ten Benefits of a VA Home Loan

Make a pro/con list to decide if a VA Home Loan is right for you

  1. No down payment is required. Typically, you are required to make a down payment to purchase a home. With a VA loan, you need no down payment. You can finance 100% of the purchase price and funding fee.
  2. There is no private mortgage insurance (PMI) requirement. With a standard mortgage, lenders require you to pay mortgage insurance if you do not have at least 20% equity in the home. This PMI is not needed when the VA backs your loan.
  3. VA loans are guaranteed by the federal government, which means a percentage of the loan will be repaid by the government if you default. This guarantee allows lenders to offer more favorable rates and terms.
  4. You can still shop around for the best rates and terms based on your budget because VA loans are not funded or originated by the VA.
  5. There cannot be a prepayment penalty on a VA-backed loan, no matter how quickly you refinance or sell your home.
  6. There are no restrictions on refinancing your VA loan. You can refinance via the VA’s Interest Rate Reduction Refinance Loan program or a conventional loan at any time. There are a variety of VA mortgages available. Whether it is an adjustable-rate or a fixed rate, used to buy a home or refinance one, the choice is yours!
  7. VA loans are easier to qualify for due to their flexibility and the VA loan guarantee.
  8. Closing costs are lower with VA loans. The VA sets limits on how much lenders can charge VA applicants.
  9. Although there may be a funding fee, there is flexibility, and it can be financed into the loan.
  10. VA loans are assumable. That means that if a future buyer is eligible for a VA home loan, you can transfer your loan to them! Assumable loans are a fantastic benefit for both sides. Especially if you got a great rate and interest rates are rising year after year.

When NOT to use a VA Home Loan

VA Home Loans are not always the right option

If you can afford to pay a 20% down payment and have good credit, then a VA home loan may not be the right option for you. One of the main advantages of a VA loan is that you do not have to have PMI. If you have a 20% down payment, you do not have to have PMI, and you can avoid the VA funding fee.

Also, consumers on the Credit Alert Verification Reporting System, a database of consumers who have defaulted on government obligations, will not be eligible for the VA loan program.

If you have a non-veteran co-borrower that is not your spouse, you may want to consider other options as well. The VA home loan only covers the Veteran’s half of the loan, and the lender may require additional down payments for the portion not guaranteed.

If your spouse has a low credit rating, and you live in a state with community property laws, the VA must consider their credit and financial obligations with yours. Regardless if you list your spouse on the mortgage or not, this law still applies. The following states have community property laws:

  1. Arizona
  2. California
  3. Idaho
  4. Louisiana
  5. Nevada
  6. New Mexico
  7. Texas
  8. Washington
  9. Wisconsin

If your spouse does not have good credit or owes child support, alimony, or other maintenance, your VA approval will be more challenging. However, your spouse’s financial history and status are not considered unless they are on the loan application with a conventional loan.

The VA home loan program aims to help Veterans and active-duty service members buy and live in their own homes, not build a real estate portfolio. If you want to purchase multiple properties, you will need to use conventional loans to do so.

Conclusion

Now that you know how to apply for a VA home loan, it’s time to prepare yourself. As you can see, there is a lot of information to learn before you apply for any new home loan. Ensure you do your research and are ready to commit to a pretty large financial obligation. Compare offers from multiple lenders and understand how a VA loan will affect your finances.

It is easy to get your COE if you are eligible, but that doesn’t mean you are guaranteed to get the loan. A VA loan is a fantastic benefit and can help you accomplish your dream of homeownership. Good luck! As always, thank you for reading. Please feel free to leave any questions or comments you have below!  To see how this and other VA Benefits are changing in 2021 and beyond, check out this article!

This is a great resource too!

22 thoughts on “How To Apply For a VA Home Loan – What’s The Benefit of it?”

  1. Very informative site! I like the layout, as well. It reminds me of a WSJ article or AARP, which is great for the vertical you’re looking to work with. I’m not a vet, but the fact that I know how to get a VA loan now is still super useful! 

    Reply
  2. This is both great news and information. I am not a veteran, neither do I have any veteran in the US army. But it pleases my heart to see that these veteran after serving their country do have the benefit of getting a VA home loan. Although it is not for everyone, but there a lot of persons that meets the criteria for eligibility. It is also nice to see that spouse of those killed during service are also eligible.

    Reply
    • Thank you Nelson!  Yes, is it not a well known fact that some spouses are eligible for a VA Home loan.  I hope that I was able to shed some light on this topic for them and others!

      Reply
  3. Thank you for elaborating on this rarely discussed topic. A lot of folks out there are eligible for the VA loan but don’t have enough information as to how to go about it. Top of it is your explanation on who will not need a VA loan. If I can afford 20% down payment and have good credit, then I don’t need a VA loan. It is not just about jumping on the loan but being financially wise 

    Reply
    • Absolutely!  Sometimes people think that because it is a “benefit”, it is more advantageous but that is not always the case.  Thanks for your response and feedback!

      Reply
  4. Hello there!

    That is an awesome guide and a very helpful one at that. The VA home loan is a wonderful initiative and it appears like a saving ground for any one to run to in times of emergency with limited options. Considering the guide, it is very easy to obtain and it doesn’t take difficult task for one to be eligible for it.

    Thanks for that awesome and helpful guide

    Reply
    • Thanks Caro!  You are correct, it is very easy for Veterans to be eligible for a VA loan.  However, qualifying for the loan still requires financial qualifications.

      Reply
  5. Thank you for this informative article! This is highly useful for my grandma from my father’s side since her husband was a deceased veteran. I will send this article to her guardian since they are in the middle of finding a load to rent a house. By the way, is it possible to use a VA loan if the veteran’s child is the one who applies for this loan? Thanks

    Reply
    • Hi Alblue, thanks for the response and I hope the article helps your grandma.  Unfortunately, dependent children are not eligible for the VA Home Loan Program.

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  6. I know that there are some exeptions to the rule when it comes to surviving spouses of veterans. But I have continued to reseach about this and I am elegible. So I also appreciate you told us also how to apply for a Certificate of Eligibility.

    VA loans are definetelly easier to qualify for!

    Reply
    • Thank you Ann.  I gather from your comment that you are a surviving spouse.  I am truly sorry for your loss.  Thank you and your spouse for your service and sacrifice.  🙁

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  7. Thank you for sharing such an informative post about a va home loan. Thanks for sharing the benefits and things to consider before we get the loan. It is truly a big financial commitment but it is also another good option for my family as well. I am going to share your post with my husband. Thanks again. 

    Reply
    • Thanks for reading it Nuttanee!  I am glad that you were able to get some valuable information from my article and I hope you and your husband are able to take advantage of it!  Thank you and your husband again for your support and your service!

      Reply
  8. Thanks for sharing this interesting article, it is good that this kind of benefits are made out for our veterans to get because it’ll also serve as our own way of telling them that we appreciate their services towards us. Home loan will be very helpful as it’ll give people the chance to be able to own their own abodes. 

    Reply
    • Thank you Shavo.  You are correct, the VA Home Loan program is yet another way for Veterans to pursue the goal of becoming a home owner.  I am very thank ful for this benefit and I hope that you, and others were able to gain some valuable insight to this program!

      Reply
  9. It’s great to read that people who have served their country can get a loan for a new home. Yes there are restrictions as you would expect but they are not so bad as to make the process impossible. Its great that you have also given the information about having a 20 % deposit and if you do then don’t go for the V A loan. I can see this will be a very helpful topic for many former service men and women, as well as their significant others,

    Reply
    • Thank you Lisa.  VA Loans are very beneficial to many who cannot afford a down payment to buy a home.  I am glad this information was helpful!

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  10. Wow! I have an uncle who was serving until early 2018 and he tried applying for tge VA loan but he got denied (I don’t remember the reason). From what I could gather throughout your whole description and explanation, there are some huge requirements that have to be met in order to be eligible – which can take a lot of time. I’ve seen so many people apply and get approved as well and even thought it was a long process they were satisfied at the end results. 

    Reply
    • Hi Stephanie.  Yes, getting a certificate of eligibility is super easy and super fast, but qualifying for the loan is a whole other ball of wax!  When I got my first VA home loan, it was great because I could not afford to put a down payment on a house but it did take some time to get approved.  I hope your uncle will be able to reapply and get approved in the future if he still needs to.

      Reply
  11. Hi Tom, 

    Thank u for this wonderful explanation of a Home loan and ll the benefits and pitfalls. I found out all I needed to know including eligibility and Income and credit requirements. Is there also a ceiling on how much we can get for a fixed amount of pay? I would assume that there would be limits according to our earning capacity. 

    Can another loan taken from a different source also be transferred as a VA loan? 

    Thank u for all the details. 

    Aps

    Reply
    • Hi Aps!  Thanks for the response!  The VA recently removed all restrictions for loan limits so, as far as the VA is concerned, they will back any loan amount regardless of your income or earning capacity.  However, the VA is not the lending institution so you will have to qualify through the lender itself and they will definitely have restrictions.  

      Typically, you are limited based on your debt-to-income ratio (DTI.)  With a VA loan, your DTI will need to be less than 41% so that means if you make $1,000 per month, your bills (including the loan payment) must be less than $410 per month.  To figure out your DTI you can add up all of your bills and divide that by your income.  So in the example I just provided, $410 divided by $1,000 equals 0.41 or 41%.  I hope this helps answer your question about the ceiling on how much you can get.  For a more specific answer, check with your lender as each lender has their own set of requirements.

      As for transferring a loan from a different source, yes, you can absolutely do what is called a refinance.  If you are eligible for, and qualify for a VA loan, you can refinance your existing mortgage into a VA home loan.  Again, the requirements vary by lender.  Thanks again!  I hope this helps.  If you have any other questions, let me know!

      Reply

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