Everything you Must Know About VA Loans

If you’re a Veteran of the military or currently active duty, you may be eligible for VA financing. This 100% financing program allows Veterans to buy their dream home with no money down and the most flexible underwriting guidelines out of any program.

So, what is the VA loan and how does it work?

Keep reading!

What is a VA Loan?

A VA loan is a loan backed by the Department of Veteran Affairs. It’s available to Veterans or active duty service members who have completed 24-months of active duty service OR the full period for which they were called, but at least 181 continuous days during peacetime (90 days during wartime) and who were discharged under conditions other than dishonorable (any discharge other than “honorable discharge” will usually require further research by the VA to determine eligibility).

The loan program provides 100% financing, so Veterans don’t need a down payment on their loans. It also has some of the most flexible guidelines including:

• No minimum credit score requirement
• No maximum debt-to-income ratio requirement
• Proof of stable employment or employment offer to start in the next 6 months
• Proof of enough income to cover the daily cost of living

How Does a VA Loan Work?

VA loans are simple loans. You apply with a VA-approved lender, not the VA. In fact, you never work directly with the VA. As long as you have proof of your entitlement (Certificate of Eligibility or COE), you’ll never deal with the VA.

Your lender will underwrite the loan and fund it if you’re approved. The VA’s role is to guarantee the loan. This means if you default on the loan (don’t make your payments), the VA will pay the lender back a portion of the funds. This is how lenders are able to offer flexible guidelines and still provide 100% financing.

The VA Loan Funding Fee

The good news is that the VA doesn’t charge mortgage insurance. This means your mortgage payment consists only of your principal, interest, real estate taxes, and homeowner’s insurance.

But there is a funding fee you must pay. Currently for VA purchase loans closing on or after April 7th, 2023 most borrowers will pay 2.15% of the loan amount for the first-time use of their benefits assuming zero down payment. If you reuse your VA loan benefits you might pay a higher fee up to 3.3%; but for both first-time use and subsequent use of benefits, the funding fee is reduced to 1.5% if you put a down payment of at least 5% or more and 1.25% if the down payment is 10% or more. This is a one-time fee though, that is typically financed in your loan amount and doesn’t have to be paid out of pocket to purchase a home.

Also, Veterans who receive (or are eligible to receive) VA compensation for service-connected disabilities, surviving spouses of a Veteran who died in service or from service-connected disabilities, and Purple-Heart recipients are typically EXEMPT from the VA funding fee.

Are Spouses Eligible for VA Loans?

The VA treats veterans and their spouses as ‘one unit.’ So yes, spouses of veterans can be on the VA loan. But there’s another exception.

If a veteran loses his/her life during their time in service, the surviving spouse can use their benefits to get a VA loan as long as he/she remains unmarried. 

Final Thoughts

VA loans are the most flexible and attractive loan option for veterans. If you served in the military and would like to use your VA loan benefits, I can help guide you through the process.

Sellers don’t avoid VA loans like most people think any longer. VA loans today are a simple and effective way to buy your dream home with the flexible financing you deserve for serving our country.