Understanding VA Home Loan Requirements and Benefits

Finding the right mortgage option can be almost as stressful as finding the right house — perhaps more so — since you’re on a deadline, and making the wrong choice can cost you thousands of dollars over the life of your loan.

For military veterans, the process can be even more difficult. Military families may have a hard time saving for a down payment and building credit while living apart on different continents. To help them meet their homeownership goals, the United States government created the Veterans Affairs Home Loan program in 1944 so returning service members could buy homes and get fresh starts after World War II. To date, more than 24 million VA Home Loans, backed by the US Department of Veterans Affairs, have been guaranteed through the program.

How VA Home Loans Differ from Traditional Mortgages

If you’ve already started browsing home financing options, there are a few things you’ve probably noticed: Many require a significant down payment, interest rates vary, and qualifications can be hard to meet.

VA Home Loans were designed to make it easier for veterans to buy a home, even if they don’t meet such stringent qualifications. While VA loans are still serviced and financed through private lending institutions, the Department of Veteran Affairs offers a guarantee on the loan, making it more attractive to lenders.

Here are a few ways in which VA Home Loans differ from traditional mortgages:

• Down Payments: Whereas a traditional mortgage requires a down payment of up to 20% of the purchase price, VA Home Loans are available with 0% down payment.
• PMI: Private Mortgage Insurance (PMI) is typically required for a loan that makes up more than 80% of the purchase price. So, if you don’t have that 20% down payment ready, you’ll have an added PMI cost tacked on to your monthly mortgage payment. With a VA Home Loan, however, there is no PMI required, since it’s a government backed loan.
• Interest Rates: You may notice that interest rates vary depending on the lending institution. With a VA Home Loan, interest rates tend to be on the lower end, since there is less risk associated with the government-backed program. This can save buyers thousands of dollars in the long run.
• Closing Costs: Often, the buyer is responsible for paying most, if not all, of the closing costs associated with a home purchase. With a VA Home Loan, sellers may pay these expenses, allowing veterans to potentially buy a home with low-to-no closing costs.

Limitations of Veteran Home Loans

As with all home loans, there is a limit to how much you can borrow. Generally, conventional mortgage approvals are based on factors such as income, savings (that can be applied to the down payment and closing costs), debt, local property taxes, etc.

If you’re buying a house with a VA Home Loan, there are limitations on the loan amount. Fortunately, these limitations adjust for property values in specific counties. For example, in most parts of the country, a VA Home Loan can finance up to $484,350 with no money down. In New York, NY, however, the loan limit is bumped up to $726,525 to account for higher local prices. But, if you have money in the bank to apply toward the purchase, you’ll be able to increase your budget accordingly.

Another limitation is that you can’t finance an investment property or vacation home with a VA Loan. Only a primary residence (the house you plan to live in full-time) is eligible for this type of financing.

Most Important VA Home Loan Requirements

• Veterans must have served at least 90 consecutive days of service during wartime.
• Served 181 days of consecutive service during peacetime.
• Been an active Reserve or National Guard member for at least 6 years.

In addition, surviving spouses of those who died while on active duty, or as a result of a service-related disability are eligible for VA Home Loans as long as they have not remarried.

VA Home Loans are a great option for veterans, active service members, and military families who are looking for their dream homes but may not have the funds or credit for a traditional home loan. We are thankful for the men and women who have served this country, and happy to assist them on their homebuying journey.