WHAT IS A VA LOAN?
By Jessica Hudson | February 1, 2021
A VA Loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veteran Affairs. This guarantee is what gives private lenders the confidence to extend $0 down financing and advantageous rates and terms. Eligible borrowers can use a VA loan to purchase a property as their primary residence or refinance an existing mortgage.
Eligible Borrowers
You may be eligible for a VA loan by meeting one or more of the following requirements: You have served 90 consecutive days of active service during wartime, you have served 181 days of active service during peacetime, you have 6 years of service in the National Guard or Reserves, or you are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.
Certificate of Eligibility
There are three basic ways you can obtain your COE for a VA loan. You can apply through a VA approved lender (most mortgage lenders fall into this category). Most VA lenders are able to pull your COE instantly. You can also apply online through the VA’s eBenefits portal or apply by mail with VA Form 26-1880. Proof of service to obtain your COE (if it does not get generated immediately upon request) often comes in the form of the DD-214 for regular military and the NGB-22 and NGB-23 for National Guard and Reserves.
Credit Score and Income Requirements
The VA does not set a minimum credit score requirement for VA loan eligibility, but lenders typically do. Because of this, VA loan credit score requirements vary by lender. The Hudson Mortgage Group minimum credit score requirement for a VA loan, as of today, is 620. In the recent past it was 580, so it is always good to check and see what the current requirements are. In addition to credit score, the VA requires borrowers to have a certain amount of income left over each month after all major expenses are paid. The excess is meant to cover typical family needs, such as food, transportation and medical care, and is know as residual income.
Occupancy Type
VA loans are only for primary residences, although you can use this benefit to buy a duplex or another multi-unit property, provided you live in one of the units. You can use your full VA entitlement over and over again as long as you pay off the loan each time. However, you may be able to obtain another VA loan even if you’ve lost one to foreclosure or currently have one. If you have lost a home to foreclosure or have an existing home with a VA loan that you want to keep as an investment property, your remaining entitlement is able to be used on a new primary residence.
Fees
Another benefit with a VA mortgage is there is no mortgage insurance. Mortgage insurance is a monthly fee you pay with other programs when you’re not putting at least 20 percent down. The VA’s guaranty eliminates the need for any mortgage insurance or mortgage insurance premium, helping borrowers save even more money each month. However, there is a VA Funding Fee that is added to the loan amount. This is required on both purchase and refinance loans. This fee can be waived entirely for those with a service-connected disability and an exemption rating of 10 percent or more.