Welcome to our comprehensive guide on accessing your VA loan benefit. At Price Mortgage, we believe in providing Veterans with accurate information and the resources they need to make informed decisions about homeownership.
Our VA Loan specialists have extensive experience working with Veterans and is committed to providing personalized support and guidance throughout the entire home-buying process.
This blog post will guide you through the steps of using your VA benefits and answer common questions that Veterans have. Whether you’re using your VA benefits for the first time to buy a home, or have purchased multiple homes, our goal is to arm you with all the information you’ll ever need to know before taking out a VA loan.
Table of contents
- VA Loan Benefits
- VA Loan Rates Today
- VA Loan Eligibility Guidelines
- Minimum Service Requirements
- Characterization of Service
- VA Loan Entitlement
- VA Funding Fee
- VA Loan Closing Costs
- VA Loan Protections
- VA Loan Appraisals
- VA Home Inspections
- Common VA Loan FAQ’s
- Common VA Loan Mistakes
- VA Loan Misconceptions Debunked
VA Loan Benefits
If you’re an eligible member, taking advantage of the VA home loan program can provide you with a host of benefits. Some of the main advantages of this loan program include:
No Down Payment Required
With the VA home loan program, eligible Veterans with full entitlement can enjoy the benefit of not having to make a down payment. In contrast, conventional loan products typically require at least 3% down, with anything less than 20% requiring mortgage insurance. And while FHA loans are a great product, they require a minimum of 3.5% down payment.
No Loan Limit With Qualifying Entitlement
Unlike other loan programs which have limits on the amount of funding you can receive, the VA home loan program has no limit on the loan amount for Veterans with full entitlement. Your lender will qualify you based on your income, credit, and assets.
Competitive Terms & Interest Rates
VA loan interest rates are lower than other loan comparable programs, which will directly affect your monthly payment and can save you thousands of dollars over the term of your loan. It’s important to understand that not every lender has the same rates, which is why working with a local mortgage broker can help you compare interest rates from multiple lenders and find the best terms that suit your needs.
Fewer Closing Costs and No PMI Required
VA loans protect the interests of Veterans and place restrictions on the fees that lenders can charge borrowers. Additionally, there is no private mortgage insurance requirement, which can save you money over the life of your loan. VA also allows sellers to pay up to 4% concessions plus closing costs of the loan amount as seller-paid costs.
Flexible Credit and Underwriting Guidelines
One of the benefits of VA loans is that there is no minimum credit score required. While lenders may qualify you with a FICO score of at least 620, some lenders may accept scores of at least 500. Qualifying for a VA loan isn’t solely based on FICO score, but also on debt to income ratio (DTI) and residual income requirements.
Variety of Loan Options
VA loans offer a variety of loan options that can fit the needs of different Veterans. These options include a standard purchase loan, interest rate reduction refinance loan, cash-out refinance loan, VA one-time close construction loan, VA loan assumptions, and the Native American Direct Loan (NADL) program.
VA Loan Rates Today
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VA Loan Eligibility Guidelines
The VA home loan program has eligibility guidelines that categorize applicants into four groups: Active service members, Veterans (previously served), National Guard members, and Reserve members.
If you're currently serving, there is a 90-day rule for active service members. To meet the minimum active-duty service requirements for VA home loan eligibility, you must have served at least 90 consecutive days, all at once, without a break in service.
Active-duty service members will need to provide a Statement of Service that is signed by leadership or the unit personnel office. This document should include your full name, Social Security number, entry date on active duty, and point of contact information.
Served Between Aug 2, 1990 - Present
- Served at least 24 consecutive months, or
- Full period (at least 90 days) for which you were ordered to Active Duty, or
- At least 90 days if discharged for hardship or reduction in force, or
- Less than 90 days if discharged for service connected disability
Served Between Sept 8, 1980 - Aug 1, 1990
- Served at least 24 consecutive months, or
- Served full period ( at least 181 days) of which you were ordered to active duty, or
- At least 181 days if you were discharged for a hardship, or reduction in force, or
- Served less than 181 days if discharged for a service connected disability.
- If an officer, service dates between 17 Oct 1981 to 1 Aug 1990 apply
Served Between May 8, 1975 - Sept 7, 1980
- Served 181 continuous days, or
- Less than 181 days if discharged for a service connected disability
Surviving Spouse Eligibility
- The Veteran is missing in action or is a Prisoner of War (POW)
- The Veteran died while in service from a service connected disability and you did not remarry before age 57 or Dec 16, 2003
- The Veteran was totally disabled and then died but their disability may not have been the cause of death
National Guard Member Eligibility
- Served for at least 90 days between 2 Aug 1990 and present
- At least 90 days of non ADT, or 90 days of AD service of which at least 30 consecutive days on orders, or
- Six creditable years in the NG and discharged honorably or placed on retired list
Reserve Member Eligibility
- Served for at least 90 days active duty time between 2 Aug 1990 and present
- At least 90 days of non-training active-duty service, or
- Six creditable years in Selected Reserve and at least one of these must be true:
- Discharged honorably, placed on the retired list, or transferred to Standby Reserve or other Ready Reserve element after service characterized as honorable, or continue to serve in Selected Reserve
Minimum Service Requirements
You may still be eligible for VA home loan benefits if you were discharged from service for one of the following reasons:
- The convenience of the government (must have served at least 20 months of a 2-year enlistment)
- Early out (must have served 21 months of a 2-year enlistment)
- Reduction in force (RIF)
- Certain medical conditions or a service-connected disability
Characterization of Service
If you're a Veteran who meets the minimum service requirements, you may be eligible for a VA home loan if you have certain characterizations of service listed on your DD214 or equivalent form.
Determining your characterization of service is an important step in determining your eligibility for the VA home loan program. Your characterization of service will fall under one of the following categories:
If your characterization of service is Honorable, you are eligible to participate in the VA loan program. This indicates that you faithfully executed your mission and performed your duties well.
General Under Honorable
If your characterization of service is General Under Honorable, you are also eligible to participate in the VA loan program. This indicates that you faithfully executed your mission and met most of the performance and conduct requirements.
Other Than Honorable
If your characterization of service is Other Than Honorable, your eligibility may depend on the reason for the discharge. This characterization indicates that you were released from duty under administrative discharge.
If your characterization of service is Bad Conduct, it means that you were discharged as a result of a court-martial. General court-martialed service members are not recognized as Veterans by the VA. However, Special court-martials may be eligible, so you should contact the VA RLC to determine your eligibility.
Status: Not Eligible
If your characterization of service is Dishonorable, you are not eligible to participate in the VA loan program. This is the most punitive punishment.
Entry Level or Noncharacterized
Status: Not Eligible
If you have an Entry Level or Noncharacterized characterization of service, you are not considered a Veteran and are not eligible to participate in the program.
What If Your Service Characterization is Incorrect?
If you believe that your characterization of service is incorrect, you can formally request a Discharge Review Board (DRB) through your service branch. If you were separated on or after December 20, 2019, and have exhausted all available appeals, you may apply to the Discharge Appeals Review Board (DARB), which is a new board of appeals with provisions for personal appearances.
If you have questions about your VA eligibility, you can contact the VA regional loan center at 877-827-3702. They are available to assist you Monday through Friday from 8:00am to 6:00pm EST.
VA Loan Entitlement
What is the Certificate of Eligibility?
The Certificate of Eligibility (COE) is a VA form that lenders use to determine whether a Veteran has met the VA's military service requirement. The COE is used to calculate the Veteran's VA loan entitlement and indicates whether or not a Veteran has previously used a VA loan.
If you need a copy of your COE, you can obtain it by completing the online VA Form 26-1880 request at www.eBenefits.va.gov. Alternatively, you can mail in the completed VA Form 26-1880 along with proof of your Military Service to the VA Loan Eligibility Center at the following address:
VA Loan Eligibility Center
P.O. Box 100023
Decatur, GA 30031
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How Do I Calculate is VA Entitlement?
Your VA loan entitlement is the amount of money the VA guarantees to a lender. If you've never used a VA loan before, you're eligible for full VA loan entitlement and you don't technically have a loan limit. Because of this, the VA will guarantee to your lender that if you default on a loan over $144,000, the VA will pay up to 2% of the loan amount. With full VA entitlement, you're also not required to make a down payment on your home loan.
If you've used your VA loan benefits before, your Certificate of Eligibility (COE) will indicate the amount that you've already used. To calculate the amount of remaining entitlement, you can use the following formula:
Entitlement Charged x 4 = X; Conforming Loan Limit - X = Amount You Can Borrow Without a Down Payment
The amount shown in the Entitlement Charged column on your COE should be multiplied by 4. This amount should then be subtracted from the conforming loan limit in your county to determine how much you can borrow without needing a down payment.
VA Funding Fee
The VA Funding Fee is a one-time payment that's added to most VA mortgages to help offset the costs of the VA home loan program for eligible Veterans.
Do I Have to Pay a Funding Fee?
Not always! You won't have to pay a funding fee if:
- You're a Veteran receiving VA compensation for service-related disabilities
- You're a Veteran entitled to VA compensation for a service-connected disability but receive retirement pay or active duty pay instead
- You're receiving Dependency and Indemnity Compensation (DIC) as the surviving spouse of a Veteran
- You have a proposed memorandum rating before the loan closing date that states you're eligible to receive compensation due to a pre-discharge claim
- You're an active duty service member who has received the Purple Heart medal
VA Loan Funding Fee Rates
The rate of a VA loan's funding fee can vary based on several factors and can range from 1.2% to 3.3%. The table below outlines the most common types of VA loans and their respective fees for those who are exempt from paying the fee, as well as first-time or repeat users:
|Use||If Your Down Payment Is||Your Funding Fee Is||*Effective for loans closing between 4/7/2023 - 11/14/2031|
|Less Than 5%||2.3%||2.15%|
|First Time Use||5% Or More||1.65%||1.5%|
|10% Or More||1.4%||1.25%|
|Less Than 5%||3.6%||3.3%|
|Subsequent Use||5% Or More||1.65%||1.5%|
|10% Or More||1.4%||1.25%|
It's important to note that if you roll the funding fee and other costs into your loan, it could result in you owing more money than the fair market value of the property. This could reduce the benefit of refinancing in the future since your payment wouldn't be as low as you may have wanted. Additionally, it could make it harder for you to get enough money out of the future sale of the home to pay off your loan balance.
VA Loan Closing Costs
There are several closing costs associated with a VA loan, including:
Appraisal fees for a single-family property can range from $550 -$1300 depending on the state/county of purchase.
Compliance Inspection Fees
Compliance inspection fees can range from $300-$500 and vary by location and size of the property.
Recording fees are charges by state and local agencies for resisting a property's transfer of ownership. Fees will vary based on county. On average, buyers will pay $100-$150.
Credit Report Fees
Some lenders will charge up to $10 to get a copy of your credit report as some clients may need multiple credit pulls. At Price Mortgage, we never charge our clients for credit pulls.
Prepaid items include prorated property taxes, insurance, and any initial escrow deposits. Fees can vary.
Annual homeowner's insurance varies by location and coverage, and most homeowners will typically pay roughly .035% of the home's value. We can help introduce you to a number of different local insurance brokers if needed.
VA Flood Certification
The VA flood certification helps determine how much you'll need to pay for flood insurance, and costs depend on property type and location but can range from $170 to $2K or more.
Title Examination Insurance
This is a one-time fee insurance policy that protects against property title defects such as forgery, fraud, undue influence, and administrative errors. This fee can range from $500 to $3000 and will vary by location and purchase price.
Lot Survey Fee
This is most commonly done on lots in a subdivision and includes boundary lines, flood plains, septic tank locations, etc. This fee can range between $50 and $500 per acre, depending on lot size, characteristics, and how many property corners need to be identified.
VA Funding Fee
The funding fee rate will depend on the type of loan you are receiving, the total amount of your loan, and your down payment (if applicable). The funding fee is calculated as a percentage of your total loan amount. See the previous section for a breakdown of fees.
VA Loan Protections
VA loans offer Veterans certain protections that other loan options do not provide.
VA Loan "Protection Clause"
The VA protection clause must be included in the sales contract for all VA-guaranteed loans. This clause gives you the right not to purchase a home if the appraisal's Notice of Value (NOV) is below the sales contract price.
VA Loan Appraisals
VA appraisals are different from home inspections, and Veterans should have both when purchasing a property, even if it's a new build. The VA appraisal ensures that the property is safe, sanitary, and structurally sound.
After the VA appraisal, the Veteran will receive the NOV, which estimates the property's value and lists any repairs required to meet the VA's minimum property requirements.
What If The Appraisal Comes In Below The Sales Price?
If the VA appraisal comes in below the sales price, there are several options available. First, the Tidewater process requires fee appraisers to notify the requester if the estimated value is lower than the sale price. This provides an opportunity for the requester to send additional data to support the sale price.
After the Notice of Value (NOV) has been issued, if the price remains unchanged, the Veteran may request a Reconsideration of Value (ROV). The Staff Appraisal Review (SAR) will research market data and provide a recommendation, giving a second opportunity to provide additional market data.
You also have the right to not purchase the home when the appraisal's NOV is below the sales contract price. Additionally, you should have other contingencies in place, such as the satisfactory home inspection contingency.
The seller may be willing to reduce the sale price to the VA appraised value or offer seller concessions. If the seller is unwilling to negotiate a reduced price, you have the option to pay the difference in value in cash at closing.
VA loans provide unique benefits to Veterans that are not available with other mortgage products. One such benefit is the built-in value reconsideration options that are available to Veterans in case the appraisal value comes in lower than the sales price. Additionally, for new construction homes in a newly developed area, Veterans can request a "cost approach" appraisal to estimate the home's value when there are no comparable properties available.
VA Home Inspections
Although VA loans do not require home inspections, lenders may require them. The home inspection report covers all of the major home systems and components, like heating and cooling systems, plumbing, electrical, foundation, and structural integrity. The home inspection is typically paid for by the borrower and is conducted by a third party state-licensed home inspector.
The inspector will provide the buyer with a list of any issues found, and the seller and buyer can negotiate the repair costs. Your lender and real estate agent can guide you through the entire process to ensure a successful closing.
Common VA Loan FAQ's
No. The VA loan program has flexible credit and underwriting standards. Since the VA does not have a credit score or DTI requirement, it's up to lenders to decide if they want to approve your loan application. Most lenders prefer Veterans with at least a 600-620 FICO score, but there are many that can approve your loan if your score is lower. Approved VA lenders are concerned with "how" you manage your finances and credit, not merely just the snapshot of your score. The VA also supports lenders in using other compensating factors to approve your loans, such as the amount of residual income and personal assets.
No. Your VA loan must be used for your primary residence only. You can, however, purchase a multi-unit property and occupy one of the units and rent the others. Your primary residence can be occupied by yourself or your spouse or dependent children to meet the VA's occupancy requirements.
No. VA appraisals can take anywhere from 5 to 10 days to complete once the process is started by your lender. In some high-sale areas, it may take longer due to the volume of work and the VA appraiser's ability. The VA has instituted a new waterfall appraisal process to support speeding up the process. VA appraisers are authorized to conduct internal only, external only, and/or desktop appraisals in lieu of physical appraisals.
Yes! Your VA loan benefit can be used multiple times and is based on the amount of entitlement you have remaining. It is easily possible to own two to three properties using your VA loan benefit. Your lender will be able to review your certificate of eligibility (COE) and advise on how much you can afford without a down payment being required.
Yes, with a non-spouse co-borrower who is not a Veteran, a lender may require a down payment of 12.5% to 14.5%. This is due to the VA guarantees of 25% of the Veteran's loan. Having only one VA-eligible co-borrower on the loan means the lender will only have half of the VA guarantee.
If you are denied a VA loan, don't fret. Take a step back and review the reason for denial and make a plan. You may have been denied due to low income, not enough residual income, the property doesn't meet VA standards or other factors. Reach out to our VA Loan specialists that can help you formulate a plan and timeline to reapply.
Yes. You can choose to pay above the appraised value, but the difference above the appraised value is a closing cost and cannot be a part of the VA loan. The difference also cannot be covered by credits and it must come from the Veteran's funds (which can include gift funds).
Debt-to-income (DTI) ratio is your total monthly debt payments divided by your gross monthly income. VA guidelines do not have DTI limits, but most VA loan officers limit pre-approvals to a DTI of 50%.
It may, but multiple credit pulls within a 45-day period will only count as a hit against your credit once, typically around a 2-4 point drop. We advise Veterans to seek a reputable mortgage broker who can shop around for the best deal with multiple lenders on one credit pull and can even assist you with some of your basic financial and credit information.
The VA's Interest Rate Reduction and Refinance loan or "streamline refinance" can be done only if you have already used your eligibility for a VA loan on the property you intended to refinance. For an IRRRL, you need only to certify that you previously occupied it and that the loan cannot exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs (including VA funding fee).
No. If you are planning to purchase a home using your VA loan, do not let the current interest rates deter you. Interest rates are always going to fluctuate. What you can do is ensure your financial and credit information is the best it can be and work with a local mortgage broker that has the ability to shop for the best rate for you. Keep in mind, if rates decrease you can always refinance your VA loan (IRRRL).
If you miss a payment on your VA loan, you should contact your lender as soon as possible to make payment arrangements. If you miss several payments, your loan could go into default, which can lead to foreclosure proceedings. It's important to communicate with your lender to avoid any negative consequences.
Unfortunately VA loans are only available for properties located in the United States, its territories, or possessions.
Common VA Loan Mistakes
The road to homeownership can be challenging, but preparing yourself and working with a trusted mortgage team can make it easier. Here are some common mistakes that Veterans make:
Failure to Review Credit or Take Corrective Actions
While a 620 FICO score is preferred by lenders, each situation is different. Some VA lenders may accept as low as a 500 FICO score. It is important to review your credit report and take corrective actions on negative indicators prior to applying for pre-approval.
Lenders care about not only your score, but also how you manage your credit and finances. You don't need perfect credit, but a plan to manage it.
Not Obtaining a Pre-Approval for a VA Loan
Having a pre-approval in hand before you begin your home search is crucial. Realtors and sellers want to know that you have a lender that has pre-qualified you for a home loan. This demonstrates that you are serious and can help you narrow down your search with your real estate agent.
Disrupting Your Loan Pre-Approval Process
Any change to your credit or financial status after receiving loan pre-approval can be detrimental. Actions such as taking out a new car loan, quitting your job, or financing furniture can lead to a reevaluation of your credit and finances by the lender, which can disrupt the loan approval process. If your lender does not advise against these actions, they may not have your best interests in mind.
Not Having a Financial Home Buying Plan
One of the top mistakes Veterans make is not having a financial plan in place when buying a home with a VA loan. VA lenders use the VA Residual Income Requirements chart to determine if a Veteran has enough funds left over after mortgage payments and other financial obligations to live without hardship.
During the home buying process, Veterans must prepare for the knowns, unknowns, and unknown unknowns. Having a reserve fund can help ease the stress and anxiety that can come with unexpected charges and help avoid backing out of a deal.
Blurring the Lines on VA Loan Guidelines
Another mistake is blurring the lines on VA loan guidelines. The VA loan program benefits are designed to be used for a Veteran's primary residence only. Although eligible Veterans can be approved for loans to buy a multi-unit property if they want to use their VA loan to invest in real estate, lenders may have specific restrictions along with VA guidelines as far as occupancy and timelines before a Veteran can refinance or sell a property. We will help you read and understand your loan disclosures in detail to avoid any confusion.
VA Loan Misconceptions Debunked
Despite the many benefits of VA loans, there are still misconceptions that may deter Veterans from utilizing this benefit. Let's set the record straight:
VA Loans Have a Higher Denial Rate
False. According to a 2021 study by Polygon Research, VA loans have the lowest denial rate (6.5%) compared to Conventional (9.6%) and FHA loans (10.2%) using Home Mortgage Disclosure Act (HMDA) data.
VA Loans Are Too Expensive for Veterans
False. VA regulations limit the fees that Veterans can pay to obtain a loan, resulting in lower costs than conventional or FHA loans. According to a comparative pricing analysis by Polygon Research, the average net charges and credits for VA loans are $878 out of 431,393 total loans compared to $1,379 for conventional and $1,197 for FHA loans.
No Down Payment Equals Weak Financial Status
False. The ability to obtain a home loan with zero down payment is an earned benefit granted to Veterans for their service. There is no data to support the misconception that a zero down payment equals weak financial status.
FHA or Conventional Loans Are Better
False. This depends on each individual Veteran borrower. VA benefits such as no down payment requirement, no private mortgage insurance, lower interest rates, and fewer closing costs make VA loans an attractive option.
VA Appraisals Are Slow and Result in Low Value
False. While VA appraisals may take longer than other appraisals, the VA loan is the only loan product that offers Tidewater and ROV options to justify the sales price.
Sellers Must Pay All Closing Costs
False. Both Veterans and sellers are capped at the expenses they can pay towards closing costs, with sellers capped at 4% in seller's concessions. The only fee Veterans cannot pay are brokerage fees and realtor commissions.
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