VA Home Loans in General
The VA loan is the government’s attempt to make homeownership accessible for those who have provided military service to our country.
VA home loans can offer significant advantages over other loan types—zero down payment required, no monthly mortgage insurance and some of the most competitive interest rates on the market.
Lenders like VA loans because they are backed by the government, thus reducing the lenders’ financial risk of servicing these loans.
There is an upfront cost to the veteran for obtaining a VA loan, however, called the VA Funding Fee. This fee is oftentimes rolled into the loan to avoid the veteran from needing to provide additional cash upfront. The amount of the funding fee is determined by loan’s purpose, a down payment, and 1st time or subsequent use of a VA loan. Due to this fee, the VA loan may not be the best option for every veteran. If you have a down payment, and/or are planning to refinance any time down the road, perhaps paying a funding fee every time you obtain new financing would not make sense. As previously stated, the goal of the VA loan is to make homeownership accessible, however, there is a cost for this accessibility.
While VA loans can, in certain rate-reduction refinance cases, be used for investment properties, the VA loan program is intended to help veterans have an affordable option for purchasing and maintaining their primary residence.
Who can use the VA Home Loan? – VA Eligibility Requirements
Active duty, National Guard, Reserves members, and even qualifying surviving spouses of veterans can take advantage of the VA home loan option. You may be eligible for a VA home loan if you meet the following minimum requirements:
Active-duty Service- served for at least 181 continuous days (90 days if during waretime).
Veteran- completed 2 years of active duty service.
Reserves and National Guard- finished 6 years of service in an active/drilling status.
Surviving Spouses- if you have not remarried and are the surviving spouse of a veteran who passed away in the line of service or from a disability related to service.
How The VA Guarantees a Loan – VA Loan Entitlement
The Department of Veterans Affairs offers a guaranty to lenders for VA loans, protecting lenders against loss in the event of foreclosure. In such an event, the VA will guaranty the lender up to 25% of lossed loan revenue, thus providing a safety net of risk and encouraging lenders to make more VA loans.
Entitlement is the dollar amount of the guaranty the VA is willing to provide for your loan. Basically, it’s your 25% guaranty budget given to you by the VA, and you can tap into it for a single home, or spread it out across multiple homes should you move and want to purchase a new primary residence.
If full entitlement is available to you, then no down payment is needed. If you only have partial entitlement then you may need to come up with a down payment for the difference between your remaining entitlement and 25% of the home value.
For those who have dipped into their entitlement on a previous home (and still own that home), you may still have some entitlement remaining to apply towards another primary residence. The maximum amount of entitlement available to you is linked to the county loan limits that the property lies in.
The lender will reference a Certificate of Eligibility from the VA on your behalf in order to determine how much entitlement you have available. You may also obtain a Certificate of Eligibility yourself by completing VA Form 26-1880. Call the VA (877-827-3702) to find out which regional loan center to submit your request to.
VA Loan Limits
Are you limited to how much you can buy with a VA loan? The short answer is “No”.
The VA does not cap the amount of financing you are able to obtain. If you have full entitlement available to you, the only limit to the loan amount you can get is whatever loan limit the lender has an appetite for. The VA doesn’t have a cap, but lenders do. Having said that, generally with a VA loan you can obtain higher loan amounts than with conventional financing, and usually with better interest rates.
VA Funding Fee
The VA Funding Fee is an upfront cost to the veteran for obtaining a VA loan.
For first-time users the fees are as follows:
|Type of loan||Down Payment||Fee %|
|5% to <10%||1.65%|
|10% or more||1.40%|
This fee is oftentimes rolled into the loan to avoid the veteran from needing to provide additional cash upfront.
Due to this fee, the VA loan may not be the best option for every veteran. If you have a down payment, and/or are planning to refinance any time down the road, perhaps paying a funding fee every time you obtain new financing would not make sense.