It’s estimated that the VA home loans program has helped more than 27 million eligible Americans buy their home since it was created in 1944.
Do you qualify for a VA loan? Let’s go over how VA loans work, what the process looks like, and who’s eligible for a VA home loan.
How do VA loans work?
A VA home loan is a mortgage loan backed by the U.S. Department of Veterans Affairs (VA).
The VA doesn’t physically loan the money to eligible borrowers. Instead, the VA guarantees the loan, reducing the lender’s risk.
That reduced risk means lenders can often offer more favorable mortgage terms compared to conventional loans.
The VA loan process
Find a VA-approved lender
The first step to securing a VA home loan is finding a VA-approved lender, such as Assist Home Loans.
When you reach out to potential lenders, ask if they are approved to handle VA home loan applications. Many lenders will also provide this information on their websites.
Apply for your Certificate of Eligibility
The Certificate of Eligibility (COE) is a military-issued confirmation that your service meets the requirements to qualify for a VA home loan.
How to apply for a VA loan certificate of eligibility (COE)
Get preapproved for a VA home loan
Mortgage pre-approval gives borrowers an understanding of how much they can afford to spend on a home.
Your lender will review your mortgage application and financial information, including income and credit score, and provide you with a mortgage pre-approval letter.
Your mortgage pre-approval letter also lets sellers know you’re serious about buying the property—that you’re financially capable of completing the purchase.
Find a home and make an offer
Once you find a house you want, you’ll work with your real estate agent to put in an offer.
VA appraisal and underwriting
Once your offer is accepted, your home will need to be appraised; this is different from a home inspection.
One condition of the VA home loan program is that the price of the home you want to buy aligns with the appraised value. Additionally, the home must meet minimum property requirements.
VA home loan minimum property requirements include:
- A functioning heating, cooling, and electric system
- Size of the home must be sufficient for the family living there
- Must be a primary residence, not a vacation home or income property
- Must not have lead-based paint
- Crawl spaces and attics must be accessible and adequately vented
Also, at this point, the underwriter evaluates the financial and other documents you provided. If nothing has changed significantly since your mortgage pre-approval, you’ll receive word that you’re clear to close.
During the closing phase, you’ll sign the necessary documents, do the final walk-through, and receive the keys to your new home.
Who is eligible for a VA loan?
VA loan eligibility requirements include your time as a current or discharged service member of the armed forces—the United States Army, Navy, Marine Corps, Air Force, Coast Guard, National Guard, and Space Force Guardians including Reserve components.
The VA will determine eligibility based on your service classification, duration, and when it occurred. Surviving spouses of eligible service members and veterans can also qualify for VA home loans.
VA home loan requirements
In addition to the VA’s requirements, borrowers must prove they can afford the home purchase.
While the VA doesn’t specify minimum credit prerequisites, credit requirements can vary from lender to lender. However, many lenders require a minimum 620 credit score.
VA loan eligibility requires a maximum debt-to-income (DTI) ratio of 41%.
However, you could still meet eligibility with a higher debt-to-income ratio if your lender can justify your loan approval to the VA.
If you’ve declared bankruptcy, foreclosed, or made a short sale, you’re ineligible for a VA loan for a period of 1-2 years.
While inconvenient, the VA waiting period is significantly shorter than conventional mortgages which can require borrowers to wait seven years following bankruptcy before applying for a home loan.
How can I verify my VA loan eligibility status?
Borrowers with questions about eligibility status can contact the VA regional loan center at 877-827-3702 ( Monday-Friday, 8:00 a.m.-6:00 p.m. ET).
What is a VA entitlement?
The amount the VA will reimburse your lender is your VA loan entitlement. There are two types of entitlements:
- Basic entitlement
- Bonus entitlement (sometimes called additional or Tier 2 entitlement)
Together, your basic and bonus entitlement determine how much of your home loan the VA will guarantee, which determines whether you can use the zero down payment option.
Your Certificate of Eligibility lists your basic entitlement. If you have “full” entitlement, there is no VA loan limit, and you qualify for no down payment.
You qualify for “full” entitlement if any of the following statements apply:
- You’ve never used the VA home loan benefit
- You’ve used the VA home loan benefits to buy a home but repaid the loan in full and sold the home
- You used the VA home loan benefit to purchase a home, had a foreclosure or compromise claim (also called “short sale”), and repaid the loan in full
What is the VA funding fee?
While VA loans don’t require private mortgage insurance (PMI) like conventional mortgages, there’s an additional cost associated with VA home loans—the VA funding fee.
The VA funding fee is a one-time administrative fee charged at closing or rolled into your total mortgage amount.
The VA funding fee varies but generally ranges between 1.4% to 3.6% of the loan amount.
This fee reduces the cost of VA home loans for American taxpayers and helps to ensure the program will continue to be available to help future borrowers.
Get in touch with Assist Home Loans to guide you through your VA loan pre-approval process
We’re happy to answer any questions you may have about which product is right for your financial needs. You can read more about different loan types on our blog.
Photo by Karolina Grabowska