Veterans Affairs (VA) loans are a great benefit of military service and are available to service members, veterans and surviving spouses. They offer key advantages not found in other mortgage types, including no down payment, relaxed credit requirements, low interest rates, limited closing costs and no prepayment penalties.
Even if you don't have a perfect credit score, your VA loan benefit may allow you to purchase, refinance, build or repair a home at an excellent interest rate. We're here to answer your most common questions about using your VA loan benefit.
What Exactly Is a VA Loan?
A VA loan is a form of a home loan provided by private lenders, including banks, credit unions and mortgage companies. The VA makes these loans possible by guaranteeing a portion of the loan, enabling the lender to finance your home with excellent terms and rates.
Who Is Eligible for a VA Loan?
If you served in the armed services for at least 181 continuous days during peacetime or 90 days during wartime, you’re generally eligible for a VA loan. National Guard members and reservists who have been mobilized for active duty for at least 90 days or who have served for six years also qualify. Surviving spouses may obtain a VA loan if their spouse died while serving or due to a service-related disability.
The most obvious difference in the origination process is that you need to obtain a certificate of eligibility (COE) through the VA. You can receive your COE by applying online or through the mail, or your VA lender can give you the paperwork. A lender familiar with VA loans can be very beneficial for walking buyers through the COE process.
“To apply for a Certificate of Eligibility, veterans, former reservists and National Guard members need to provide a copy of their discharge or separation papers to the VA,” said Rashalon Hayes, assistant vice president of field mortgage at Navy Federal Credit Union. “Active-duty service members, meanwhile, need a statement of service signed by their commander, adjutant or personnel officer.”
How Difficult Is it to Get Approved for a VA Loan?
VA loans are relatively easy to qualify for if you meet the eligibility requirements. In addition, because the government backs a portion of each VA loan, private lenders face less risk, allowing more flexibility for loan approval. However, keep in mind that you still must be approved by the lender, and you will need to show that your income will cover the mortgage payments.
Do I Have to Purchase PMI When I Use a VA Loan?
PMI, or private mortgage insurance, protects the lender if you default on your loan or stop making payments. PMI usually is required on a conventional loan if you have less than a 20% down payment to put down on your home purchase.
In today's market, coming up with a 20% down payment can be challenging. For example, the average VA loan amount is $250,000. If the borrower were using a traditional loan, the borrower would need to put down $50,000 to avoid buying PMI. The monthly cost of PMI can run between $150 and $200 per month. By using a VA loan, you can avoid PMI and save thousands of dollars. In general, look for lenders that don’t require PMI.
Will My Offer Still Be Considered Competitive in Today's Market if I Use a VA Loan?
The housing market is still hot this fall, and U.S. News and World Report says home prices are up 19% over last year. With this much activity, VA borrowers may wonder if their offer stands a chance of being considered.
In the last few months, Navy Federal’s lending team saw an uptick in homebuyers, sellers and even realtors expressing skepticism about VA loans. These attitudes can worry military families into forgoing their hard-earned benefits. Some of the most common myths include:
- The VA inspection and appraisal process takes too long;
- Only cash or conventional loans make for competitive offers in today’s market;
- And the savings provided by VA loans aren’t significant in the long run.
“The reality is the VA-backed mortgage remains one of the best tools available to military-affiliated buyers, even in 2021’s highly competitive housing market,” added Hayes.
A good agent can advocate on your behalf to sellers. In addition, some lenders like Navy Federal offer buyers free real-estate assistance. Homebuyers have the chance to earn cash back after purchasing their home by using a Realty Plus agent.
Regardless of who you work with, always start with pre-approval from your lender. Pre-approval is attractive to sellers because an underwriter already has reviewed your loan application and examined your finances, income and employment—indicating the sale is likely to go through.
Your agent may suggest other strategies to make your offer more competitive, including putting down earnest money (a deposit made to a seller that represents a buyer's good faith to buy a home), offering above the asking price and adding a personal letter with proof of your service, assets and VA underwriting approval.
How Do I Refinance a VA Loan?
A VA Interest Rate Reduction Refinance Loan (VA IRRRL) allows existing VA loan holders to refinance for a lower interest rate, lower monthly payment or both. You also can switch from an adjustable-rate loan to a fixed-rate loan, which will help you lock in your rate—giving you consistent payments. You may only apply for a VA Streamline Loan if the new terms provide you with an immediate financial benefit like those listed here.
VA IRRRL requires far less paperwork because you already have qualified for an existing VA loan. A home appraisal or inspection is not required. Because so many requirements are waived, the process usually moves along fairly quickly. Keep in mind that there will be closing costs and that the VA requires a waiting period of either 210 days from the date of the first payment or after the sixth monthly payment (whichever is longer) before an existing VA loan can be eligible for an IRRRL.
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“If you’re eligible for a VA loan, you should discuss the option with your lender,” added Hayes. “Working with a military lender can help you take advantage of every benefit you’ve earned because we know these products inside and out.”
Navy Federal can help you take advantage of all the VA Loan benefits, as well as guide you through the home-buying experience by providing personal assistance, resources, low rates and membership benefits.
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