A VA Loan is a mortgage insured against default by the United States Department of Veterans Affairs. The program is designed to assist our most deserving citizens to obtain home financing, at competitive interest rates, while requiring no down payment or private mortgage insurance (PMI).
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VA Loans: An Overview
VA home loans can be used to:
- Buy a home
- Build a home
- Simultaneously purchase and improve a home
- Improve a home by installing energy-related features or making energy efficient improvements
- Buy a manufactured home and/or lot
- To refinance an existing VA-guaranteed or direct loan for the purpose of a lower interest rate
- To refinance an existing mortgage loan or other indebtedness secured by a lien a residence occupied by the veteran as a home
Your length of service or service commitment, duty status, and character of service determine your eligibility for specific home loan benefits (see applicable eligibility requirements). VA-guaranteed loans are eligible for a home for your occupancy or a spouse and/or dependent (for active duty service members). To be eligible, you must have satisfactory credit and income to meet the expected monthly obligations, and a valid Certificate of Eligibility (COE).
- Veteran & Current or former National Guard or Reserve member who has been activated Federal active service – requires a copy of a DD Form 214 showing the character of service and the narrative reason for separation
- Active Duty Servicemember or Current National Guard or Reserve member who has never been in Federal active service- A current statement of service signed by (or by the direction of) the adjutant, personnel office, or commander of the unit or higher headquarters. Must show your full name, social security number, date of birth, entry date on active duty the duration of any lost time and the name of the command providing the information.
- Discharged member of the National Guard who has never been activated for Federal active service – NGB Form 22, Report of Separation and Record of Service, for each period of National Guard Service -AND- NGB Form 23, Retirement Points Accounting, and proof of the character of service.
- Discharged member of the Selected Reserve who has never been activated for Federal active service – a copy of your latest annual retirement points statement and evidence of honorable service.
- Surviving Spouse in Receipt of DIC (Dependency & Indemnity Compensation) benefits – Submit VA Form 26-1817 and veteran’s DD 214 (if available). Include the veteran’s and surviving spouse’s social security number on the 26-1817 form.
Surviving Spouse not receiving DIC benefits – submit the following to the appropriate Compensation and Pension office; VA Form 21P-534-ARE, DD 214 (if available), Marriage License, Death Certificate or DD Form 1300 – Report of Casualty. Find the mailing address for your state to send the VA 21-534 at PMC States.
Applying for a Certificate of Eligibility
After gathering all the necessary documentation, you can apply for a Certificate of Eligibility (COE) a number of different ways:
- Servicemembers, Veterans, and National Guard and Reserve Members
- Apply online with the eBenefit portal.
- Apply through your lender. Most lenders have access to the system, an Internet-based application can establish eligibility and issue a COE. Not all cases can be processed this way, the VA must have sufficient data on record.
- Apply by Mail. Use VA form 26-1817, Request for Certification of Eligibility.
- Surviving Spouses
Take a VA Form 26-1817 to the lender for processing or mail the 26-1817 and the DD 214 (if available) to the designated address.
Perhaps the greatest advantage of VA home financing is the ability to avoid mortgage insurance while requiring no down payment at the same time. In fact, loans can be granted up to 103.3% Loan to Value (LTV) is the lessor of the sales price/ appraised value divided by the loan amount expressed as a percentage), meaning that borrowers can borrow more than 100% of the value of their home.
Though VA loans do not require mortgage insurance, they do carry a funding fee of 3.3% of the loan amount. The fee is financeable at a borrower’s request, which is the purpose of allowing eligible veterans to borrow 3.3% more than their home’s value.
Disabled veterans are exempt from the funding fee based on their percentage of disability. Bear in mind, with all mortgages there are closing costs to consider aside from your down payment, like origination fees, title fees, escrow deposits, etc. Unless covered using existing equity or by seller concessions, these costs will have to be paid by borrowers at the closing table.
- Income documentation: W2s & pay stubs (if hourly/ salary), 2 years tax returns (if commission/ self employed)
- Asset documentation (itemized statements for savings, checking, or investment accounts)
- Property sales contract
- DD214 or Certification of Guarantee
- Certificate of Eligibility
Where to Apply
The Department of Veterans Affairs does not originate VA loans they simply write the program guidelines. To obtain a VA mortgage, you will need to find a VA approved lender.
Smaller community or regional banks may also offer VA loans so checking websites or placing a phone call can determine if they offer a VA loan product. When speaking to VA lenders, it is best to have all the necessary documentation ready.
This will give you the quickest and most accurate gauge of your qualifications. If you can’t garner the necessary docs beforehand, not to worry. Most loan officers should be able to point you in the right direction.
Frequently Asked Questions
1) Q: How do I get pre-approved?
First, you need to fill out an application and submit it to the lender of your choice. For the application you need 2 previous years of tax returns including your W-2’s, your pay stub for past month, 2 months worth of bank statements and the lender will run your credit report. Once the application is submitted and processed it takes anywhere from 2-7 days to be approved or denied. Check out our top lenders and lock in your rate today!
2) Q: How much interest will I pay?
Interest that you will pay is based on the interest rate that you received at the time of loan origination, how much you borrowed and the term of the loan. If you borrow $208,800 at 3.62% then over the course of a 30-year loan you will pay $133,793.14 in interest, assuming you make the monthly payment of $951.65. For a purchase mortgage rate get a quote here. If you are looking to refinance you can get started quickly here.
3) Q: How much should I save for a down payment?
Most lenders will recommend that you save at least 20% of the cost of the home for a down payment. It is wise to save at least 20% because the more you put down, the lower your monthly payment will be and ultimately you will save on interest costs as well. In the event that you are unable to save 20% there are several home buyer programs and assistance, especially for first time buyers. Check out the lenders that specialize in making the home buying experience a breeze.