Last year, the VA removed limits on home loans for qualifying borrowers, and it hasn’t announced any plans to change that policy in 2021. That means veterans and service members will have access to $0-down mortgages for more-expensive homes.
Read on for all the details about VA loans.
What is a VA loan?
- 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 gives lenders some extra security, allowing them in turn to provide better terms like $0 down payments, lower interest rates and more flexible underwriting requirements. Qualified borrowers may be able to secure 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 are the VA loan terms for 2021?
As of last year, VA loan no longer have value limits for qualified borrowers. That means first-time VA loan borrowers will have no cap on the size of $0 down VA loans. The VA funding fees, which most borrowers have to pay when they close on their mortgage, remain the same as they were in 2020.
The funding fees range from 0.5 percent on some refinances to 3.6 percent for some home purchases. The exact fee varies depending on the value and type of your loan, how much you put down, and whether it’s your first VA financing.
These one-time fees help keep the loan program running. However, some borrowers may have to pay slightly (0.15 to 0.30 percent) more than the published rates in 2021. Veterans and service members will be charged the higher rates 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 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, debts and other 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.
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:
- What veterans need to know about getting a VA loan
- Calculate your monthly payment for VA loan with no down payment requirement
- Refinance your VA loan to lock in a historically low interest rate
- Which mortgage should I get: VA, FHA or conventional?