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VA Loan Questions and Answers

Answers to Commonly Asked Questions About VA Home Loans and Refinance Loans. Please Submit Your Question If It Isn’t Below!

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VA Home Loan Questions

Buying or refinancing a home is a big decision and preparation makes a huge difference. Our VA loan experts have the knowledge and advice you need to get the most from your VA home loan benefits.

Who Qualifies For A VA Loan?

As for the service requirements for the VA loan, the VA requires prospective borrowers to meet one of the following:

  • Serve 90 consecutive days on active duty during wartime, or
  • Serve 181 days on active duty during peacetime, or
  • Serve 6 years in the Reserves or National Guard, or
  • Be the surviving spouse of a service member who died while serving or due to a service-connected disability.

If you served less than the requirement with a discharge other than dishonorable, you still might be eligible. You can request a lender pull your Certificate of Eligibility (COE) to determine your status.

Speaking of your COE, if you are unsure of your status, you can start the VA loan process by contacting a lender and obtaining your COE. Contacting a lender for your COE clears up the difficult questions around overlapping service, or if basic training counted towards your eligibility.

For anyone else wondering the difference between wartime and peacetime, see the following breakdown:

Wartime Service (90 Consecutive Days):
World War II (September 16, 1940, to July 25, 1947),
Korean Conflict (June 27, 1950, to January 31, 1955),
Vietnam Era (August 5, 1964, to May 7, 1975), or
Gulf War (August 2, 1990, to present)

Peacetime Service (181 Days):
July 26, 1947, to June 26, 1950,
February 1, 1955, to August 4, 1964, or
May 8, 1975, to September 7, 1980 (if enlisted) or to October 16, 1981 (if officer)

Basic VA Loan Guidelines

Beyond service requirements, the VA provides broad guidelines to lenders making VA loans.

From a high level, to get a VA loan, you must:

  • Be an eligible Veteran or military spouse with available VA loan entitlement.
  • Use the VA loans for an eligible purpose (homeownership).
  • Occupy, or intend to occupy the home within a reasonable time (typically within 60 days of closing).
  • Be an acceptable credit risk.
  • Have stable and sufficient income to make mortgage payments, pay debt obligations, cover the costs of owning a home and have enough left over for discretionary income after all major expenses.

Lenders typically have additional guidelines on top of these, known as lender overlays. For example, being an acceptable credit risk is too broad for a lender making the loan. The majority of lenders will want to establish a set credit score requirement.

What are the VA mortgage limits?

The VA’s loan limits look different today than they have in recent years.

The loan limits have often inspired confusion among homebuyers and even people in the mortgage industry. The main reason for the confusion is because it sounds like there’s only so much house you can buy with a VA loan, and that’s absolutely not the case. Lenders might have their own in-house cap for how much they’ll lend, but the VA doesn’t impose any kind of cap on how much you can borrow using your benefit.

Today, veterans with their full VA loan entitlement can borrow as much as a lender is willing to lend without the need for a down payment. It wasn’t always like that. In previous years, the VA’s county level loan limits would come into play, and veterans looking to purchase above their limit would be on the hook for a down payment.

For example, in years passed, if you were buying a $500,000 home in a county with a $400,000 loan limit, you would need money for a down payment. Now you don’t, as long as you have your full VA loan entitlement. Needless to say, this is a huge benefit and a big change for veterans nationwide. To buy a $500,000 house with a conventional loan, you might have to put down $50,000 or more.

But it’s also important to understand that the VA’s loan limits haven’t gone away, either. If you have less than you full entitlement available, either because you lost a previous VA loan to foreclosure or you have one or more active VA loans right now, then you will have to contend with the loan limits, which can change annually.

In these cases, lenders will use the county loan limit to help determine how much you can borrow before needing to factor in a down payment. Buyers in these situations are relying on what’s known as their second-tier entitlement. If you’re looking to buy with less than your full entitlement, I also encourage you to check out our video about second-tier entitlement and how to reuse your VA loan benefit.

What documents do I need to get started (What to Expect)?

For W2 employees we generally need a minimum of

  • 2 months of bank statements
  • 1 month of pay stubs
  • Copy of photo ID
  • Last 2 years W2’s.

Self-employed Veterans require additional documentation

What Kind of Credit Do I Need?

Credit score requirements are a fact of life in the mortgage industry and your credit score will affect your eligibility for a VA home loan. Regardless of the type of loan you’re seeking, you’ll typically need to meet a lender’s minimum credit score in order to secure home financing. These cutoffs can vary depending on the lender, the loan type and your specific financial situation.

The good news is VA loans feature more flexible and forgiving credit guidelines than other loan types. In fact, the VA doesn’t enforce a credit score minimum in order for veterans to utilize the program. Instead, it requires borrowers to be a “satisfactory credit risk.”

But the VA doesn’t actually make home loans. Instead, the VA loan program basically insures a portion of each loan issued by a mortgage lender. The lender takes on the bulk of the risk with each loan. Because of that, lenders are allowed to tack on requirements and standards that go beyond what the VA wants to see.

You’ll often hear these additional requirements called “overlays.” A credit score requirement is among the most common.

Different lenders can have different credit score cutoffs. But a 640 FICO score is a pretty good barometer for many VA lenders. For a conventional loan, it’s often at least that, although to get the best rates and terms you may need at least a 740 FICO.

How do I Boost My Credit Score?

Your credit score can have a big impact on your ability to get a home loan. Higher scores can also mean better interest rates and loan terms, and that can save you a lot of money in the long run.

What’s encouraging is that your credit score isn’t set in stone. There are steps you can take to help improve your score, from changing the way you use credit to paying old debts and even fixing errors on your credit report.

The challenge for a lot of people is knowing where and how to begin. Here are some key tips for building and boosting your credit score.

Use Credit Responsibly

Each bill is your opportunity to tell a future lender what kind of borrower you are. Make the most of each of those opportunities. Pay your bills on time, and don’t take on more debt than you can handle.

Be careful with excessive credit inquiries. Shopping around for credit cards or other types of loans is important, but hard inquiries can ding your credit score and be an indicator of risk, especially if you don’t have a strong credit profile. There’s a difference between comparison shopping and trying to rack up a bunch of new credit, and credit scoring formulas (and lenders) can’t always tell the difference. FICO does allow for mortgage rate shopping within a 45-day window, meaning you can seek preapproval from multiple lenders without having each credit inquiry count against you.

Another tip for responsible credit use: Don’t co-sign on a loan with a friend or relative. Co-signing on a loan puts your financial future on the line. If your co-signer makes a late payment or goes into default, your credit score takes the same hit. Keep your credit in your control. Don’t share your credit with anyone.

Handle all of your bills responsibly to maximize your credit score and your financial options.

Keep Credit Card Balances Low

You want to keep the balances on your credit cards relatively low, preferably 30 percent or less of your card’s limit. You also want to keep your cumulative spending below 30 percent of your entire credit limit. So that’s either no more than $300 on a $1,000 credit limit or a $3,000 on a total credit limit of $10,000 spread across multiple cards.

Keeping big balances on your cards can drag down your score. For consumers who don’t use credit cards, getting one or two may actually help improve their credit score, provided they use it wisely.

Don’t Close Old Accounts

The length of your credit history plays an important role in your overall score. A more seasoned track record can help bolster your credit score. Even if you’re no longer using older credit card accounts, don’t close them out. Instead, keep them open and allow them to age.

Settle and Pay Outstanding Debts

Judgments, tax liens and federal debts may have to be paid in full before you can close on a mortgage. You may be able to move forward on a loan after establishing a repayment plan in some cases. But you’ll typically need to show lenders at least a 12-month history of satisfactory payments on that plan. Items in collection are more of a gray area, but it’s best to get these paid off as well.

Fix Errors

About 1 in 4 credit reports contain errors serious enough to result in denial of credit like a home loan, according to data from U.S. Public Interest Research Groups.

Comb through your credit report carefully and watch for the following potential errors:

  • Accounts that do not belong to you
  • Collection accounts
  • Accounts past due and late payments

You’re ultimately responsible for your credit report. That includes any errors that your report may contain. Fixing errors on your credit report is a three-step process, and it starts with notifying the credit bureau or bureaus.

Here’s a quick look at these three basic steps:

Step 1: Dispute the error with the credit bureau.
Obtain your credit report from all three credit bureaus. Send a letter to any bureau that is reporting the error. That could be either one or all three of the credit reporting bureaus (Experian, Equifax or TransUnion). Credit scoring firm FICO has a good sample dispute letter on their website.

Step 2: Inform the creditor (in writing) of the error.
You’ll also want to contact the appropriate creditor. This could be the credit card company, retailer or lien holder who is reporting the error to the credit bureau. You can typically send the same letter and documentation to both the credit bureau and the specific creditor.

Step 3: Check back often.
Credit bureaus are required to investigate errors within a short period of time, usually 30 days. Creditors can take a bit longer to respond, but generally reply within 30 to 90 days. If you fail to get a response, check back in writing and follow up with a phone call.

That’s just a handful of the ways you can work to improve your credit score. There are so many other things you can do, and many of them will really depend on your specific situation.

What to Avoid

Here’s one thing we suggest you avoid: Paying a company or an individual for credit repair. The big reason why is that you can do everything they can. There are plenty of great free resources online that offer tips and other concrete ways to boost your score. There’s no magic or secret to any of this.

 

 

 

Do I need a down payment?

VA and USDA loans don’t require a down payment, which is a tremendous benefit. Conventional loans typically require a down payment of at least 5 percent, although some lenders may go as low as 3 percent. For FHA loans, the minimum is 3.5 percent. On a $200,000 mortgage, that’s $10,000 for the traditional conventional down payment and $7,000 for an FHA down payment.

Needless to say, it can take prospective buyers years to save that kind of cash. Buyers may be able to use gift funds or down payment assistance programs to help secure home financing, but policies vary depending on the loan type, the lender and more.

Do I have to pay mortgage insurance?

FHA and USDA loans have annual mortgage insurance premiums that can add $80 to $100 or more to your payment every month. Conventional borrowers usually need to pay for private mortgage insurance unless they can put down 20 percent of the purchase price. PMI fees can vary depending on your credit, your loan-to-value ratio and other factors. It’s typically anywhere from 0.2 to 1.5 percent of the loan balance. VA loans have no mortgage insurance.

Can I use my VA Loan more than once?

One of the biggest misconceptions about VA loans is that they’re a one-time opportunity. The reality is you’ve earned this benefit for life.

Every time you use a VA loan, you’re using at least a portion of your VA loan entitlement.

This topic can get tricky even for people in the mortgage industry. Generally, the entitlement you use when buying a home remains tied up in that property until the loan is repaid in full.

For example, if you purchase a home for $200,000, then about $50,000 of your entitlement is wrapped up in that home, given the nature of the VA’s guaranty. You could purchase again without selling that home, but you would have less zero-down buying power because of your diminished VA loan entitlement.

But if you’re ready to sell that home and get another, that’s a different story. As long as you sell the home and pay off the loan in full, you can have your full entitlement restored and available for another purchase. Having your full entitlement means being able to borrow as much as a lender is willing to lend without the need for a down payment.

Restoring your entitlement is a simple process that involves a little paperwork and documentation.

Should I get preapproved before I start looking at houses?

Loan prequalification and preapproval are incredibly important steps that give homebuyers a clear sense of their purchasing power and what they can realistically afford. Loan preapproval shows real estate agents and home sellers that you’re a serious buyer who can make a strong offer.

In fact, some real estate agents and home sellers won’t accept a purchase offer without a copy of your preapproval letter.

Here are three reasons why it often makes more sense to start the homebuying journey with a mortgage lender:

  • You’ll know if you’re a good candidate. By starting with a lender, you’ll get a good sense of whether you can actually secure a mortgage, how much of a loan you can obtain and how much your monthly payment will be. Sellers and their real estate agents want to see strong homebuying candidates who are likely to make good on their offer and get to closing day. Being preapproved gives you a clear sense of what’s possible and shows sellers you’re a serious contender.
  • You’ll know what you can afford. Talking to a lender first can help you avoid a big emotional letdown. The last thing you want to do is spend time looking at houses you can’t actually afford. It’s heartbreaking to fall in love with a $300,000 home and later find out you can only qualify for $200,000. Avoid that pain by knowing in advance what price tag you can afford. Getting preapproved allows you to shop for homes under realistic budget constraints.
  • A VA lender can help you find a veteran-friendly agent. Real estate agents who aren’t familiar with the details of the VA loan program could waste time showing you properties that have little chance of meeting VA and lender guidelines. Lenders can try and help connect you to a veteran friendly real estate agent in the community. That can be especially helpful for service members who are PCSing to an unfamiliar duty station. We’ll talk much more about working with real estate agents in our “Starting the House Hunt” course.

Again, it’s absolutely fine to start this journey with an agent. Regardless of where you begin, you’re going to be working toward the same goal: Getting preapproved for a home loan.

Real estate agents will also likely look to connect you with lenders and loan officers they’ve worked with in the past. Just be sure you’re talking with lenders and loan officers who truly understand VA home loans – that helps ensure you can fully evaluate all of your mortgage options before choosing a loan product that makes the most sense for you.

Take the next step today and get pre-Approved for a VA loan.

If you’re ready to move forward, or just want more information, the first step is to fill out an application.

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