VA Loans

Updated July 2023

If you’re looking to get a VA loan, it’s essential to check the eligibility requirements before you apply. While some of the requirements, like the credit score, can differ based on the lender, others are standard for receiving the loan. Whether it’s a construction, renovation, or home loan, here is all you need to know about the VA loan eligibility requirements.

Types of VA loans
There are different types of VA loan benefits that veterans, active duty service members, National Guard personnel, and qualifying surviving spouses can get, which offer them powerful home financing options. There are standard VA loans and VA refinances loans. Aside from those mentioned, others include VA construction loan, VA conversion loan, VA renovation loan, VA Jumbo loan, and Native American direct loan.

VA Purchase Loan
The most common loan type is the VA purchase loan, which is a standard form of VA mortgage that allows eligible veterans and borrowers to purchase properties without a down payment. The VA home loan allows you to buy a new or existing home, including single-family homes, manufactured homes, new construction, condominiums, and multi-unit properties.

VA Renovation Loan
There is also the VA renovation loan, which allows borrowers to get funds and buy and renovate a property. The loan can also help you finance the cost of improving and renovating your home. Like a traditional VA loan, the VA renovation loan is provided to finance the alteration and repair of a home. Not every VA mortgage lender will provide a VA renovation loan.

The approved repairs and renovations include adding or breaking down walls, repairing or replacing the roof, private water systems, septic systems, and features for those with disability. Some ineligible repairs include those for oil tanks, private waste systems, adding a new structure like a patio or pool, and any repair that would take over 9 months to complete.

VA Construction Loan
A VA Construction One-Time Close Loan is a permanent construction-to-permanent loan program available to veterans, service members and surviving spouses. It provides all-in-one financing in a single closing, as the borrower can finance the lot or land purchase, construction of the home and permanent mortgage.

The single closing with this construction loan eliminates the extra fees and you can also finance the funding fee into the loan. It comes with either 15-year or 30-year fixed term options, and requires a minimum credit score requirement of 620 for most lenders. The qualified houses include modular homes, one unit stick built house, multi-wide housing and new manufactured houses. There are no payments due during construction and the interest rate will be protected.

VA IRRRL
The VA Interest Rate Reduction Refinance Loan (IRRRL) is a refinance loan that allows VA borrowers to reduce their monthly mortgage payment by reducing the interest rate or changing the loan from an adjustable rate to a fixed rate.

With this refinance loan, the borrower won’t have to conduct an appraisal or provide additional documentation about their income. Also, the VA IRRRL allows you to add borrowers with a joint VA loan. Keep in mind that you should consider the closing costs.

VA Cash-Out Mortgage
The VA cash-out mortgage loan is another option that allows you to use 100% of your house’s equity to pay the family debt, medical bills, educational costs, and other expenses. The VA cash out refinance can be used for renovating your home or boosting your bank accounts.

There is also a rate-and-term refinance option that borrowers can use. The cash-out mortgage is available to non-veterans too, but there won’t be enough equity.

VA Energy Efficient Mortgage
Veterans can also consider the VA energy-efficient mortgage, as this allows them to borrow money for adding energy-efficiency features to the home. It can be as part of your purchase loan or a refinance loan. You can receive an energy-efficient mortgage to add features like storm and thermal windows, solar heating, cooling systems, and heat pumps. But you can’t use this mortgage payment to buy appliances and non-permanent features.

No down payment requirement
Regardless of the VA loan that you are applying for, there is no down payment required. The VA loan does not ask for a down payment because the Department of Veterans Affairs guarantees a portion of the loan. If the borrower defaults, the VA protects the private lender, allowing the latter to offer good terms like the no down payment requirement.

Despite this, it is possible to put a down payment on your VA loan. With at least a down payment of 5%, you can reduce your VA funding fee. Putting a down payment also allows you to pay smaller monthly mortgage payments and build your home equity faster.

• Service members should have served for 90 continuous days without a break in service.
• For veterans, it depends on where they served, so it’s important to ask the VA lenders.
• For a National Guard member, it also depends on when they served.
• Reserve members depend on when they are served.

If you meet the VA loan requirements based on your type of service, you can apply for a VA home loan. It’s best to get pre-approved first before searching for your new home.

VA closing costs
The VA loan closing costs are between 2 and 6 percent of the loan amount, but they differ based on the VA approved lenders, the state, and the property involved. There are different closing costs to pay with a VA loan, which include the funding fee, appraisal fee, loan origination fee, title insurance, and recording fees:

• The VA funding fee is a one-time fee that borrowers have to pay to use a VA loan. The fee depends on the military service status and the loan amount.
• The VA appraisal fee is charged by the VA appraiser to check the value of the property.
• The recording fee is charged by the county to record the mortgage and deed.
• The loan origination fee is requested by the VA lender to pay for the processing costs of the loan.
• Title insurance protects from title defects, and the cost differs based on the state.

There might be other costs like attorney fees, taxes, and insurance. Also, some of the closing costs can be negotiated with the seller. But veterans cannot pay the commission for real estate professionals, buyer broker fees, brokerage fees, mortgage insurance, and termite reports.

There are different ways to reduce your VA loan closing costs, as these can make it expensive to receive a loan. You should ask around about closing cost assistance programs, which are government-backed programs that would pay the closing costs for you. Also, shop around for lenders to compare closing costs, although Security America Mortgage focuses on costs that the borrower can afford.

You should also consider making a down payment, as this would reduce the total loan amount and the closing costs. There are also seller contributions, as house sellers can pay up to 4% of the purchase price, thereby covering the closing costs.

What Closing Costs Can Be Negotiated?
To reduce costs, veterans, active service members, National Guard personnel, and surviving spouses can negotiate closing costs and lender fees with the seller of the house. The closing costs that can be negotiated include the VA funding fee, loan origination fee, and VA appraisal fee.

You can also negotiate the loan discount points or funds used for temporary buydowns, hazard insurance, state and local taxes, real estate taxes, payment of credit balances, recording fees, and title insurance.

Can you qualify for a VA loan if you do not meet the debt-to-income requirements?
You cannot qualify for a VA loan if you don’t meet the debt-to-income ratio, which is 41%. The veteran must have at least a 41% debt-to-income ratio, or they will be rejected with their loan application. Most veterans ignore or overlook this, which causes them to get denied.

There is no maximum DTI ratio, but the ratio should not exceed 41%, except if the borrower has compensating factors like a high credit score, a history of on-time payments, and a large down payment.

Can you qualify for a VA loan with a low credit score?
You can qualify for a VA loan with a low credit score, as there is no minimum credit score requirement. The VA requires their private lenders to review the entire loan profile rather than depending on the credit score alone. You can get a VA loan with a poor credit score, even as low as 600, as long as you meet the other requirements.

VA loan eligibility requirements
There are several VA loan eligibility requirements. These include:

• You must be a veteran, which involves serving on active duty in the United States military for 90 days or during the war.
• You must meet the minimum credit score and income requirements. Although the VA does not require a credit score, most lenders ask for at least 620. You also have to show that you earn enough income to afford the monthly payments.
• You must have a Certificate of Eligibility (COE), which is a document that proves that you are eligible for the VA loan.
• You don’t need to make a down payment, but you must be able to.
• It must have a satisfactory appraisal for the amount of the loan.
• You should have the DD-214.

You should have these to be eligible for a VA loan.

Does my home qualify for a VA loan?
There are some factors that determine whether your home or property meets the requirements for a VA loan. The VA’s minimum property requirements that you need to meet to receive a VA loan. It covers different factors, which include:

• The condition of the heating, cooling, and roof systems and electrical wiring.
• The condition of the structure and foundation.
• The property’s location.
• The presence of lead-based paint.
• The availability of sanitary facilities and clean water.

But, if the home does not meet the VA loan, you can also apply for a VA renovation loan.

VA loan mortgage rates
There are no set VA loan mortgage rates, which is a VA home loan benefit. The VA mortgage rates are constantly changing, so it’s best to get a quote per day.

Income needed for a VA loan
There is no minimum or maximum income needed for VA loans. Some lenders state their income requirements, so it’s best to check before you apply. For instance, the lender would check your personal income levels to know how much you can pay monthly. They also request your employment record to see if you have a steady income source.

Certificate of Eligibility (COE)
The Certificate of Eligibility is a document that shows that veterans, active duty service members, National Guard personnel, or surviving spouses are eligible for a VA loan. You can get a COE by yourself with the Veteran Affairs website. Security America Mortgage also offers direct access to va.gov and will allow you to receive your automated COE.

How to prepare for the VA COE application?
If you want to submit a COE application, you need to have a copy of your discharge or separation papers. But as an active-duty service member, you need a statement of service with your name, Social Security number, date of birth, the date you entered duty, name of the command, and duration of any lost time. It must be signed by your commander or personnel officer.

VA Loan Benefits
There are different VA loan benefits. These include:

• There is no down payment required with a VA loan, which allows service members and veterans to receive a loan without saving for a down payment.
• There is no monthly private mortgage insurance on a VA loan, which means that veterans can save a lot of money while paying back the loan.
• VA loan rates are more competitive than conventional loans, as they are usually one percent lower. This helps veterans repay the loan easily.
• There are relaxed credit requirements when it comes to a VA loan, as you can receive a loan with a very low credit score. Keep in mind that the VA lender would still use the credit score benchmark to check your borrower’s risk.
• The VA places a limit on the closing costs that the veteran would have to pay. Veterans don’t have to pay all closing costs, and some are covered by other parties.
• Another VA loan benefit is that you can apply for VA loans more than once, and you don’t have to pay it back in full to use it again. You can also use more than one VA loan at once.
• There are no prepayment penalties with a VA loan, so borrowers can pay off the existing VA loan without worrying.
• There is no problem with foreclosure when you apply for VA loans. There is a guarantee program that helps veterans keep their homes.
• VA loans come with flexible underwriting standards, so even if you have a poor credit history, you are in debt, or you have been bankrupt before, you can still get a VA loan.

VA loan property requirements
The minimum property requirements must be met for any property to be eligible for a VA loan. These requirements simply make sure that the property is safe, structurally sound, and sanitary, covering different factors like the condition of the heating and cooling systems, sanitary facilities, the foundation location of the property, and more.

Debt-to-income ratio for a VA loan
The debt-to-income ratio is a maximum of 41%. The borrower DTI ratio should not exceed 41%, except they can make up for it with a high credit score or a large down payment. But if your file does not get an Automated Underwriting System approval, you need a DTI of 43% instead.

The debt-to-income ratio is calculated when you divide the monthly debt payment by the gross monthly income. Also, it is affected by your housing costs, credit card debt, and car payments. If you have a low ratio, you have a higher chance of getting approved. You can lower your DTI ratio by paying off your debt.

VA loan limits (with partial entitlement only)
VA partial entitlement allows you to buy a new one without selling your present one. The VA entitlement isn’t provided only once, so if you have not used your full loan entitlement, you can use the rest for the second loan. This way, you can buy a new home without selling your present house. This is one of the major VA benefits.

Keep in mind that a partial entitlement VA loan might not be enough to cover the full price of your home. The lender might ask for a down payment due to this risk. There is also a higher VA funding fee on the second loan, but this depends on the size of your down payment.

Also, the loan entitlement is not the same as the loan limit, as the latter is the total amount that you can borrow for your home. The full and partial entitlement will fit into your loan limits, although there is no fixed cap on how much you can borrow.

Reserve Funds
The reserve fund is a liquid asset that can be used to pay for unexpected expenses like a medical emergency or job loss. It can be cash, money market accounts, and savings accounts. You need to have reserve funds to qualify for a VA loan, but the number of months of reserves depends on the lender.

While some lenders ask for two months of reserves, others might request six months. The reserves also depend on your DTI. The reserves make sure you have enough money to cover the monthly payments if you face financial hardship.

If you are applying for a VA loan, ask your lender if they have reserve requirements, as not all lenders do so. They would inform you of the type of assets they accept, whether it’s cash or an account, and how many months of reserves you should have. If you have a lower debt-to-income ratio, you should be able to reduce your reserves.

Who is exempt from the VA funding fee?
Here are the situations where one is exempt from the VA funding fees:

• If you are receiving retirement or active-duty pay but are eligible for VA compensation due to a service-related disability.
• If you received a proposed memorandum rating prior to the loan closing date, showing that they are eligible to receive compensation from the Department of Veterans Affairs due to a pre-discharge claim.
• If you are a veteran with a 10% or higher disability rating.
• If you are receiving Dependency and Indemnity Compensation from the VA as the surviving spouse of a veteran.
• If you have evidence of receiving a Purple Heart before or on the loan closing date.
• If you receive compensation from the VA for a service-related disability.

How Much is the VA Funding fee for a VA loan?
The VA funding fee depends on how much the down payment is. If your down payment is less than 5%, the funding fee is 2.15%. But, if it is more than 5%, you would pay 1.5%. For a down payment of 10% or more, you pay 1.25%.

If you are getting a VA loan for the second time, the funding fee will also change. If you pay less than 5%, the funding fee would be 3.3%. But, if you pay more than 5% or 10%, the funding fee remains the same as that of the first use.

Occupy the home as a primary residence
With a VA home loan or VA construction loan, the house you are building must be occupied as a primary residence. As a VA homebuyer, you need to live in your home for at least 12 months to meet the occupancy requirements. Also, the property that you purchase must be the primary residence, even if you are stationed abroad. You cannot purchase the home if it is for investment purposes or a second home. You also cannot purchase land if you are not going to build on it immediately or purchase a farm that does not have a primary residence for you.

You must move into the new home within 60 days of closing on the house. This is only exempted if you are an active duty service member or National Guard personnel and you are working abroad at the moment. But, you would meet the occupancy requirement if your spouse lives in the home within 60 days or has a dependent child while you are away on active duty. With a dependent child, your attorney must make the occupancy certification.

Rest assured that if you purchase your home but are then deployed for active service, your occupancy status will not be affected. You would still own the home, whether or not your spouse is on the property. Also, if you are retiring within 12 months of applying for the loan, you can negotiate a later move-in date. There is also delayed occupancy if there are repairs and changes being made to the home that would prevent you from moving in. In this case, you must move in once the work is done.

What if I don’t meet the minimum service requirements?
If you don’t meet the minimum service requirements, you can still get a VA loan with a Certificate of Eligibility. You could get the COE if you were discharged for:

• Hardship.
• Early out.
• Certain medical conditions.
• The convenience of the government.
• Reduction in force.
• A service-connected disability.

You should ask your lender if they would provide you with a loan based on these service requirements.

VA loans without full entitlement
Each time you use VA loans, the amount of entitlement would reduce. Entitlement is the amount of money that is guaranteed on VA home loans, and if you use all of it, you won’t be able to get a new loan until you restore the entitlement. This can be restored by paying off the VA loan, getting a one-time restoration from the VA, or refinancing the VA loan with a conventional loan.

How to Apply for a VA Loan
If you want to apply for VA loans, you can do so from the Security America Mortgage website. Go to the website and apply for the VA loan program that you need, whether it’s a VA home loan, construction loan, renovation loan, or energy-efficient mortgage. If you’re getting a home loan, get pre-approved first.

No delinquent federal debt
If you have federal debt, you won’t be able to get a VA loan. Veterans, National Guard personnel, and service members that are delinquent or in default when it comes to their loans would not meet the standards for satisfactory credit risk.

Find your home and order your appraisal
A VA loan appraisal is done to estimate the market value of the home that you want to buy. A VA-approved appraiser will check the home thoroughly to make sure it meets the requirements of the Department of Veterans Affairs. Once you find a home that you want to purchase with the VA loan, you should order the appraisal. The estimated market value would be used in the application for your VA home loan.

Contact your lender to get started on your VA loan application
It’s always best to contact your lender to apply for a VA loan. With a reliable lender like Security America Mortgage, you can get started on the home loan application and speed up the VA loan process. Whether it’s a home loan, construction loan, renovation loan, or refinancing loan, you can work with a top-notch lender to get started.