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The U.S. Department of Veterans Affairs (VA) effectively has a no-limits policy on home loans for eligible borrowers. That means qualifying veterans and service members have access to zero-down mortgages, even for expensive homes. Here’s an overview.
What is a VA loan?
VA home loans are a valuable benefit for service members, veterans and eligible surviving spouses. They often provide more favorable terms on mortgages and refinancing than what is typically available, including:
- No down payment requirement
- No mortgage insurance requirement
- More flexible credit underwriting
- Lower interest rates compared to typical mortgages
VA loans are issued by banks and other VA-approved mortgage lenders, with the Department of Veterans Affairs guaranteeing a portion of the loan. That federal backing gives lenders some extra security, allowing them in turn to provide better terms like no down payments, lower interest rates and more flexible underwriting requirements. Qualified borrowers might 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 for 2023
These are the main requirements for getting a VA-backed purchase loan:
- You must be entitled to and obtain Certificate of Eligibility (COE) based on your military service record:
- 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 must live in the home you’re buying (no investment properties)
- You must meet the lender’s underwriting requirements, including those for credit and income
As of 2020, VA loans no longer impose loan limits for qualified borrowers. That means first-time VA loan borrowers have no cap on the size of their zero-down VA loan.
The funding fee, meanwhile, ranges 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 loan. 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 loan FAQ
Getting a VA loan requires a certificate of eligibility (COE). You can get your (or an eligible spouse’s) COE through the VA eBenefits website or by mail, or your lender might be able to get it for you. You’ll also need documentation that proves the borrower has met minimum service requirements. Veterans need a DD Form 214 describing their 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. Check out the VA eBenefits website for specific documentation requirements pertaining to your situation.
Yes, surviving spouses might 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 Dec. 16, 2003; and in some cases, a surviving spouse of a totally disabled veteran whose death was not related to the disability.
The VA itself doesn’t impose a minimum credit score requirement. Instead, it requires lenders to look at the borrower’s overall risk profile. However, lenders can and do set their own underwriting requirements, and many want to see a credit score of 620 or higher. As for income, the VA has guidelines it wants underwriters to consider to make sure the borrower can afford the loan, including a debt-to-income (DTI) ratio of no more than 41 percent.
Learn more about VA loans and VA refinancing with these resources: