The VA is an excellent source of financing for military members and veterans looking to purchase homes, but there are some restrictions associated with their program.
VA loans are not available for the purchase of vacation or investment property. Any home purchased with VA loan proceeds must be your primary residence.
Certificate of Eligibility
One of the initial steps toward qualifying for a VA loan is obtaining a Certificate of Eligibility (COE). This document documents that you meet certain eligibility requirements – such as service time – to be eligible.
It is easy to apply for a Certificate Of Eligibility (COE), whether you do it online or via mail. The process can take anywhere from four to six weeks, depending on the speed at which your application is submitted.
Your Certificate of Eligibility will contain your name, Social Security number, branch of service and any loans charged against your entitlement. There will also be a 2-digit entitlement code that identifies when and why you might qualify for a VA Loan.
The COE tells lenders if you have used VA benefits in the past and if a funding charge applies to your new loan. It also lists Minimum Property Requirements (MPRs), which help ensure that your new home meets safety, structural soundness, and sanitary criteria.
Minimum Property Requirements (MPRs)
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 ensure your house meets basic safety, sanitation and structural criteria to make it 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.
The MPRs for residential homes include requirements on space and accessibility. The MPRs for residential homes include space requirements, including living, sleeping, eating, and cooking, as well as functional, sanitary bathrooms.
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 loans that allow homebuyers to refinance or purchase a house with a lower interest rate and down payment than conventional loans.
VA guarantees these loans in part. You cannot get one without first having established credit.
Private lenders also establish minimum credit score requirements before providing loans, typically between 580 and 660.
Mortgage lenders often use your Debt-to-Income ratio (DTI) to determine whether you can afford to make your monthly payments. This percentage shows how much debt you have (including mortgage payments) in relation to your income.
Pay Down Payment
VA borrowers do not typically make down payments on homes. However, it may be prudent to pay a small amount as part of the price of the home, for example, if you are buying in a seller`s marketplace or if you want to increase your chances of getting financed.
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 can also benefit from other benefits, such as no mortgage insurance. MI can cost hundreds each month; it isn`t available with VA loans.