What is a VA loan?

VA home loans help active service members, veterans of the armed forces and eligible family members including surviving spouses become homeowners. The VA (the Department of Veterans Affairs) does not offer mortgages directly, but rather guarantees the loans that are issued through private lenders. 

How do I know if I qualify?

VA loans are available to current service members and in some cases their spouses:

• Those currently serving in the military or veterans who were honorably discharged.
• This service must include at least 90 consecutive days of active service during wartime or at least 181 consecutive days of active service during peacetime. 
• Those having more than six years of National Guard or reservist service.
• The surviving spouse of a service member killed in the line of active duty might also be eligible as well. 

In order to obtain a VA loan, borrowers must present a VA certificate of eligibility (COE). 

Buying a home in 2020

The home buying process in 2020 has been impacted by the COVID-19 pandemic in several ways. 

• Interest rates are low making the cost of borrowing for those who qualify for the best rates more affordable. This is due in part to the actions of the Federal Reserve to keep rates low and to stimulate the economy.
• Many home sellers have taken their homes off the market for a variety of reasons. This combined with slow growth in new homes as served to reduce the supply of available homes in some hot areas. 
• Even though interest rates are low, qualifying for a mortgage is tougher for many borrowers due to the fact that a number of lenders have implemented more stringent borrower requirements as a reaction to the economic slowdown in the wake of the pandemic. 

How to choose the best VA lender

VA loans are offered by private lenders with the backing of a VA guarantee. That said, all lenders are not the same, some may be better than others for your situation. You will need to do your homework in order to find the best VA lender for your situation.

Different lenders may be best for borrowers with different situations or offer some specific benefits. Some lenders may be better for borrowers in certain situations or offer a better experience for some borrowers. This might include:

• Veterans who might not qualify for a conventional loan due to blemished credit histories or other factors.
• Borrowers who prefer to do everything online. It’s important to assess the level of customer service offered by the lender how the process works.

As with any type of loan, you will want to know:

• Since there is no down payment required with a VA loan, will the lender finance the loan amount you are looking for based on your overall borrower profile?
• The overall loan APR including any loan fees by the lender. These fees will vary based upon factors such as whether you make a down payment and the nature of your service in the military.
• Technically there is no minimum credit score for a VA loan, but lenders may charge a higher rate for borrowers with poor credit scores, generally below 620. This will vary by lender and you will want to understand how each lender you are considering handles this.
• The loan terms. A shorter-term loan will result in less interest paid over the life of the loan but will also result in higher monthly payments. You will want to see what best fits your budget and your overall situation. 

Overall, are VA loans a focus and priority of the lender ? Do they seem to welcome borrowers looking for VA loans? 

FAQs

What does it cost?

While VA loans don’t require private mortgage insurance if you put less than 20% down, you will need to pay a VA funding fee. This fee is a percentage of the amount borrowed and will vary based upon:

• The amount of your down payment, if any.
• Whether this is your first time obtaining a VA loan or if this is a subsequent application.

Additionally your lender might charge for things like a credit check, VA appraisal fees, any discount points you decide to pay on the mortgage, insurance and any other closing costs. This will vary by lender in some cases these costs can be rolled into the loan.

What do I need?

In order to apply for a VA loan, you will need to apply for a certificate of eligibility . There may be forms to complete and active veterans will need a statement of service. Requirements may vary a bit for surviving spouses, National Guard or Reservists. 

You will also need to prove that you will be living in the home you are trying to finance through a VA loan. These loans cannot be used to finance investment property.

Does my credit score matter?

The VA does not have a minimum credit score requirement, However, the private lenders through whom the loan will be made might have their own minimums. Borrowers with a credit score lower than 620 will want to look for a lender who will still make the loan and from whom that can still get a decent interest with a lower credit score. 

Can I use a co-signer?

If the active military or veteran is legally married, then their spouse can co-sign the loan. Two unmarried military members can also co-sign together with no adverse ramifications. A military member can also bring an unrelated non-military co-signer with one caveat. The VA guarantee on the loan is limited to the amount of the military member or veteran’s interest in the property. Note that not all lenders will allow this type of arrangement at all. 

Can I use a VA loan to finance investment property?

The rules prohibit the use of a VA loan to finance the purchase of an investment property. You also may not use a VA loan to finance a vacation home. 

Can I still qualify if I am active in the armed forces?

Borrowers who are still active military members, active in the National Guard or active reservists can still qualify for a VA loan. 

A VA loan can be a great alternative for those who qualify. Borrowers who are eligible should consider going this route, especially if their financial profile is less than stellar.