If you’re a Veteran then you’ve probably heard about VA home loans.
This mortgage program is an incredible benefit for our Nation’s Veterans.
A VA loan is a 100% loan for eligible veterans that does not require mortgage insurance
Here is a 2020 updated overview on VA loans:
What is a VA loan?
- A VA home loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs
- They are issued by private lenders that are approved by the VA, the VA does not offer loans, they just guarantee them
- They do not require a down payment, you can finance 100% of the price of the home
- Military service persons and their spouses may be eligible
- Mortgage insurance premiums (PMI) is not required
- VA funding fee of 2.15% for first-time buyers or 3.3% for repeat buyers is needed
Who is Eligible For A VA Loan?
Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability also can apply.
Active-duty military personnel generally qualify after about 180 days of service. Reservists and members of the National Guard must wait six years to apply, but if they are called to active duty before that, they gain eligibility after 181 days of service.
You may qualify if you:
- Served 90 consecutive days of active service during wartime
- Served 181 days of active service during peacetime
- Have been an active member of the National Guard or Reserves for 6 years or more
- Are married to a service member who died in the line of duty or as a result of a service-related disability
VA Loan Advantages:
- 100% Loan
- No mortgage insurance premium (MIP)
- Flexible requirements
- Higher debt-to-income ratios accepted
- Seller can pay 4% of closing costs & title expenses
- Fixed-rate and adjustable-rate loan terms
2020 VA Credit Score Requirements
VA home loans do not have a minimum credit score. The Department of Veterans Affairs will guarantee a mortgage loan regardless of the borrowers FICO scores.
Banks set their own minimum credit requirements. Most VA lenders want to see at least a 580 score to approved the loan application.
Lenders will look at more than just your FICO score. They take into account your entire credit history.
FHA loans are also available for those with lower credit scores.
If you have a credit score below 580 it’s highly recommended that you improve your credit score before applying. (Please send this link to the credit section)
Or if you have at least a 10% down payment you may qualify for an FHA loan with a credit score as low as 500.
Credit Score Guidelines
- 580 or higher credit score (Some lenders have bad credit VA loan programs that will approve with a 580 score)
- No more than one late payment in the past 12 months
- No bankruptcies, foreclosures, or short sales in the past 36 months
- No mortgage rates in the past 6 months
VA Entitlement , Certificate of Eligibility, Income, & VA Funding Fee
To determine if you are eligible for a VA-insured mortgage loan you must have a COE (certificate of eligibility) from the Dept. of Veterans Affairs.
Your Alliance lender will be happy to assist you in obtaining one or you may visit the VA website to request your certificate.
Please keep in mind that a COE does not guarantee loan approval. It merely states your eligibility for a VA loan.
The VA entitlement is a dollar amount that the VA will guarantee a home loan. Basic entitlement for a 100% loan is $36,000. This entitlement figure is found on your COE (certificate of eligibility)
If you have full or restored entitlement you will potentially qualify for the max loan amount in your area
You will need to speak to a VA Alliance lender to determine how much of an entitlement you have available.
What is the VA funding fee?
B the VA loan program doesn’t require mortgage insurance, in order to help fund the VA program there is a one-time VA funding Fee.
The funding fee amount will depend on the amount of the loan and whether or not you’re using a down payment.
The majority of funding fees are rolled on top of the loan. However, you have the option of paying the funding fee up front as well.
Funding fee is not required if you meet the following:
- Receiving VA payments for a service-connected disability, OR
- Veteran who would be entitled to receive compensation or if didn’t receive retirement or active duty pay, OR
- Are a surviving spouse of a Veteran who died in service
VA Funding Fee Chart
|Down payment||Fee (first-time buyer)||Fee (subsequent use)|
|0%||2.15 percent||3.3 percent|
|5-10%||1.5 percent||1.5 percent|
|10%+||1.25 percent||1.25 percent|
National Guard and Reserves and Chart
|Reserve & National Guard Personnel|
|Down payment||Fee (first-time buyer)||Fee (subsequent use)|
|0%||2.4 percent||3.3 percent|
|5-10%||1.75 percent||1.75 percent|
|10%+||1.5 percent||1.5 percent|
Allowable VA Income
- W2 Income
- LES income
- Part-time income (under certain guidelines)
- Overtime and bonus pay
- Seasonal positions
- Income from a second job
- Child support
2020 VA Loan Limits
The VA loan limit in low cost areas of the country has been increased to $484,350 in low cost areas, and up to $726,525 in high cost areas of the country. This also includes the higher cost areas of the country too.
VA county loan limits: https://www.benefits.va.gov/homeloans/purchaseco_loan_limits.asp
VA Jumbo Loans
If you’re looking a loan to purchase a home that exceeds the loan limit in your area you may be able to get a VA jumbo loan.
You will need to pay 25 percent of the amount over the loan limit.
For example if you lived in a low cost area like Charlotte where the loan limits is $484,350.
And you wanted to buy a home that costs $584,350, which is $100,000 over the limit.
You will need to pay 25% of $100,000. So you will have a down payment of $25,000.
2020 VA Debt-to-Income Ratio
The Department of Veteran Affairs does not have a set debt-to-income ratio.
Most Lenders like a DTI ratio at or below 45%. 45% is not a hard stop because there are certain situations where a lender will allow a higher debt-to-income ratio.
Compensating factors for a higher DTI
- Loan-to-value ratio below 90%
- Limited payment shock
- Good steady income
- Good credit score
VA loan Wrap Up
The VA home loan program is an incredible program for eligible veterans.
VA loans are easier to qualify for than conventional loans and have lower interest rates.
VA loans are great for all Veterans, especially first-time home buyers because they offer 100% loans without mortgage insurance.
**DISCLAIMER: All policy information contained in this knowledge base article is based upon the VA loan guidelines. The Veterans administration occasionally makes changes to the VA loan program, so the information given potentially could be out of date. For current up to date information on the FHA loan program, we encourage you to either contact the Veterans Administration directly or ask an Alliance member for further information.