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VA loans got turbocharged in 2020. The VA will no longer place limits on the size of VA loans, thanks to new rules that kicked in on January 1. That means veterans and service members will have access to $0-down mortgages for more-expensive homes. At the same time, VA loan funding fees will rise for many borrowers, with some important exceptions.

Read on for all the details about VA loans and the changes for 2020.

What is a VA Loan?

VA home loans are a valuable benefit for service members, veterans and eligible surviving spouses. They provide more favorable terms on mortgages and refinancings than what is typically available.

  • VA loans have advantages including:
  • No down payment requirement
  • No private mortgage insurance (PMI) requirement
  • More flexible credit underwriting
  • Low interest rates compared to typical mortgages

VA loans are issued by banks and mortgage lenders, with the U.S. Department of Veterans Affairs (VA) guaranteeing a portion of the loan. The federal backing provides security to the lenders, allowing them to provide better terms like $0 down payments,  lower interest rates and more flexible underwriting requirements. Borrowers may qualify for an affordable mortgage even with less-than-stellar credit. However, there is a VA loan funding fee that most borrowers have to pay.

VA home loan eligibility requirements

These are the main requirements for getting a VA-backed purchase loan:

  • You must be entitled to a Certificate of Eligibility (COE) based on your military service record. According to the VA, this generally applies to:
    • Veterans who meet minimum service requirements
    • Active-duty service members who have served a minimum period
    • Some members of the Reserve and National Guard
    • Eligible surviving spouses
  • You have to live in the home you’re buying. No investment properties.
  • You must meet underwriting requirements, including those for credit and income.

What’s new in VA loans for 2020?

The biggest change is that VA loan limits have been eliminated for qualified borrowers. This is due to the Blue Water Navy Vietnam Veterans Act of 2019, that went into effect on January 1, 2020.

Under the new rules, first-time VA loan borrowers will have no cap on the size of $0 down VA loans. Formerly, veterans could only get VA loans in amounts up to the limit specified for their county. Larger mortgages required a down payment on the amount of over the limit.

There are also changes to VA funding fees, one-time fees that help keep the program running. Fees will increase for most buyers, for the next two years. Veterans and service members must pay an additional 0.15 to 0.30 percent, though National Guard and Reserve members will have their funding fee lowered to the same level as other military borrowers.

Veterans with service-related disabilities and some surviving spouses don’t have to pay a funding fee. Purple Heart recipients on active duty are now also exempt from the fee.

VA mortgage FAQs

What documents do I need to prepare?

Getting a VA loan requires a COE that proves your eligibility. You can get a COE through the VA eBenefits website, by mail, or your lender may be able to get it for you.

You’ll need documentation that you’ve met minimum service requirements. For example:

  • Veterans need a DD Form 214 describing your character of service and reason for separation.
  • Active duty service members need a current statement of service signed by a unit commander, personnel officer or other authority.

Specific documents needed by each category of borrowers are listed on the VA eBenefits website.

Can a spouse apply for a VA loan?

Yes, surviving spouses may be eligible for a VA loan. Here are some eligibility cases for spouses, according to the VA website:

  • A spouse, who has not remarried, of a veteran who died in service or from a service-related disability
  • A spouse of a prisoner of war or service member missing in action
  • A surviving spouse of a veteran, who is receiving compensation for a non-service-related death.
  • A surviving spouse who remarried at age 57 or later, on or after December 16, 2003.
  • In some cases, a surviving spouse of a totally disabled veteran whose death was not related to the disability.

What are the VA loan credit and income requirements?

The VA itself doesn’t have a minimum credit score requirement. Instead, it requires lenders to look at the overall loan profile.

However, mortgage lenders may set their own underwriting requirements, and many lenders want to see a credit score of 620 or higher.

The VA has income guidelines it wants underwriters to consider, to make sure the borrower’s income is stable and can cover the loan payment, other shelter-related expenses, debts and family living expenses.

VA guidelines suggest that the debt-to-income ratio generally should be no more than 41 percent. However, if the ratio is greater than 41 percent, lenders can still approve the VA loan by considering the borrower’s other credit factors.

How long does it take to get approved for a VA loan?

VA loans can take a few more days to close than conventional loans. On average, VA loans took 46 to 54 days to close in 2019, according to data from digital real estate platform provider Ellie Mae. By comparison, the average for all types of home purchase loans was 43 to 51 days.

Next steps

Want to find a lender for a VA loan? You can start by checking Bankrate’s current interest rates for VA loans to quickly find current rates offered by multiple lenders. And you can learn more about VA loans and refinancings with these resources: