First-Time Homebuyers VA Loan Guide
If you’re a veteran or the qualifying spouse of a veteran, a VA home loan could help you on your way to your homeownership goals. A VA loan has no requirement for private mortgage insurance or a down payment, and it offers competitive low interest rates. The terms are typically much better than conventional mortgages.
Here’s more on what a VA loan is, how you can qualify, how to apply, and what to expect.
What Is a VA Loan?
VA loans offer veterans, service members, and their surviving spouses government-backed home financing options. The loans can be used to buy, build, or improve a home or refinance a current home loan. The VA doesn’t issue the loans directly—private lenders issue them. However, the VA guarantees a portion of the loan amount, thus encouraging lenders to offer better terms.
These loans offer unique benefits, such as:
- No down payment required, except for some lenders
- Competitive, low interest rates
- No requirement for private mortgage insurance, or PMI
- Limited closing costs
History of the VA Loan Program
The Servicemen’s Readjustment Act of 1944 established the VA home loan program. Over time, it has expanded, adding benefits. For example, today’s program allows loan eligibility for manufactured homes.
In 2023, 320,272 people obtained purchase loans through the program, and another 80,420 obtained refinance loans. Additionally, over the program’s lifetime, it has helped over 24 million eligible homebuyers achieve home ownership.
Eligibility Requirements for a VA Loan
Eligibility for a VA loan is straightforward and can be found in full in the VA Buyers Guide by the United States Department of Veterans Affairs. Those who may qualify for a VA loan include:
- Veterans with honorable discharges
- Active-duty service members
- Those in the National Guard or Reserves
- The surviving spouses of veterans who have passed away from service-connected disabilities or during service
Service Requirements for Veterans and Active-Duty Military
The service requirements for veterans and active-duty military members generally mandate:
- At least 90 consecutive days of service during wartime
- At least 181 days of service during peacetime
- At least six years in the National Guard
However, it’s important to note that each branch of service has its own rules.
Other Eligibility Factors
Not everyone who is a veteran will qualify for a VA loan. While there is no direct credit score requirement for the loan, lenders may have their own that they put into place.
A lender will also consider your debt-to-income ratio and ability to repay the loan. This is in addition to the VA’s requirements, such as using the home as a primary residence and ensuring you have money left after paying your bills and mortgage.
Spouses and Surviving Spouses Eligibility
Spouses and surviving spouses of VA loans may qualify for VA loans. Spouses must show that they hold a qualifying Dependency and Indemnity Compensation award and meet one additional qualification, such as not remarrying following the death of a spouse or waiting to remarry until after turning 57. Spouses may also qualify if their service member spouse is missing in action or a prisoner of war for more than 90 days, but this benefit may only be used once.
VA Loan Benefits for First-Time Homebuyers
- No down payment requirement: You can buy a home without paying anything down, as long as the home’s appraisal justifies the price. That benefit helps you avoid draining your savings to qualify and ensures you have an opportunity to purchase a home even without significant savings.
- No PMI: VA loans don’t require PMI, even when you cannot pay a down payment. This benefit saves you up to hundreds of dollars monthly.
- Competitive interest rates: VA loans have competitive monthly interest rates because they are guaranteed. Lenders offer lower interest rates on VA home loans compared to conventional loans.
- Lenient credit score requirements: The VA does not set a minimum credit score, but lenders often do. Most people can get a loan with a credit score of at least 620, which is very flexible.
- Assistance with closing costs: Veterans may use the VA loan to negotiate seller concessions because they are flexible. Additionally, there are often fewer closing costs, which may be paid by the lender, seller, or another party.
VA Loan Funding Fee
The VA loan funding fee is a fee you pay based on a percentage of the loan amount. This fee is typically paid in cash or may be rolled into the loan’s value. It is also possible to have this fee waived, and some individuals may not need to pay it.
Those who don’t pay the VA funding fee include the following:
- Veterans with a service-connected disability for which they are receiving VA compensation
- Those eligible for VA disability compensation but who are receiving retirement or active-duty pay instead
- Surviving spouses of veterans who died in service or from a service-connected disability, who do not remarry
- Service members with a VA memorandum or proposed rating showing they’re set to receive compensation based on a pre-discharge claim
- Service members on active duty and those who can show they’ve been awarded the Purple Heart before their loan closes
How To Apply for a VA Loan
If you’re ready to apply for a VA loan, take the following steps.
Step 1: Obtain Your Certificate of Eligibility
The first step to apply for a VA loan is to get your Certificate of Eligibility, or COE. This verifies that you qualify for the home loan benefit and can also be used to see how much your remaining entitlement is if you’ve used a VA-backed loan in the past. To apply for a COE, you should go to www.VA.gov. You can also apply through your lender or by filling out VA Form 26-1880 and mailing it.
Step 2: Choose a VA-Approved Lender
The next thing to do is to find a VA-approved lender. Work with a lender experienced with the VA loan process, since they will have the insight and experience needed to make your loan application as straightforward as possible. You may find a lender:
- Through your bank
- Through a mortgage company
- Via a credit union
Shop around to find a lender that can meet your specific needs.
Step 3: Submit Your Application
Once you have your COE and a lender, submit your application with proof of service, your COE, proof of income, proof of employment, and any other required supporting paperwork. The exact requirements may depend on whether you’re a veteran, service member, spouse of a service member, or fall into another category. VA Pamphlet VAP26-7 provides more information.
Step 4: VA Loan Appraisal
Once you find a home you’d like to purchase and sign the purchase agreement, your lender will reach out to a VA-approved appraiser. This person will determine the home’s value. Your loan requires this appraisal.
If the appraisal meets the VA’s minimum property requirements, you can move forward. You’ll receive a Notice of Value, or NOV, with the estimated home value.
If the appraisal does not meet the requirements or is below the purchase price, you may request a Reconsideration of Value. You may also consider renegotiating, paying cash for the difference, or using the escape clause in the sales contract, which allows you to back out of the purchase if the NOV doesn’t meet the loan’s value.
Step 5: Closing the Loan
Once everything is approved and ready, you’ll be able to close on your new home. You will receive a Closing Disclosure at least three business days before the closing. Then, you may go to an escrow office, an attorney’s office, or a title company to complete the closing. You should expect your real estate agent to be present at this meeting. Others who may be present could include the seller, a representative for the seller, and an escrow officer.
You will be responsible for any fees that are due at closing. Some fees may include itemized VA fees and charges, a 1% flat charge by the lender, and reasonable discount points. If your lender requires a down payment, it’s usually due at closing, as well.
Following the closing meeting, you’ll receive your keys, and the home will be yours.
Common Mistakes First-Time Homebuyers Make
Everyone makes mistakes, and first-time homebuyers often run into the following:
- Overlooking prequalification: First-time buyers often skip the prequalification step, but it’s essential to know how much you can afford before you start your search for a home. You should consider your credit profile, income, expenses, and monthly budget as a part of this process, so you don’t try to take out more than you can afford.
- Not considering long-term affordability: The long-term costs of owning a home, including monthly payments, taxes, insurance, and any unexpected homeownership costs, can end up being more expensive than you thought. Without proper planning, this could negatively impact your finances.
- Underestimating the VA loan process: The VA loan process requires you to get a VA home loan COE and verify that you qualify for the benefit. There could be delays if you previously borrowed and your entitlement hasn’t been restored, or if you don’t meet other qualifications as expected. That’s why it’s important to work with professionals who understand the VA loan process. They can help reduce the likelihood of problems during the homebuying process.
- Ignoring VA loan limits: Clarify the concept of VA loan limits and how they may affect first-time buyers, especially in high-cost areas. Discuss the possibility of applying for a loan that exceeds the limit.
VA Loan Myths and Misunderstandings
Myth 1: VA Loans Are Only for First-Time Homebuyers
VA loans are not only available for first-time homebuyers. The benefit may be used multiple times, provided the eligibility requirements for each loan are met.
Myth 2: You Need Perfect Credit To Qualify for a VA Loan
The VA has no credit requirements to qualify for a VA loan, but lenders do. Most require at least a 620 credit score. The VA’s leniency on credit scores means that even those with less-than-perfect credit can still qualify.
Myth 3: VA Loans Are Difficult and Time-Consuming
VA loans are streamlined compared to conventional loans, and the process can be efficient with the right preparation. Preparing documents such as your COE or a VA service-connected disability award letter, if required, can help when done in advance.
What To Expect After Getting Your VA Loan
Managing Your Mortgage Payments
Refinancing Your VA Loan
You may be eligible for an Interest Rate Reduction Refinance Loan, or IRRRL. This streamlined VA-to-VA refinance loan doesn’t require you to get a home appraisal or go through credit checks. It can lower your rate or stabilize payments.
VA Loan Assumption
Veterans sometimes want to sell their homes or give them to another veteran to continue paying on the loan. In some cases, a VA loan can be assumed by another individual. Benefits of loan assumption include maintaining low interest rates on a property, a low funding fee of 0.05% for those who are not exempt, and the home’s equity stays with the loan. Anyone, even non-veterans, may assume the loan.
FAQs About VA Loans
You have questions, and we have answers. Here are some of the most common questions about VA loans and the answers you need to know.
How Do I Know if I'm Eligible for a VA Loan?
To be eligible for a VA loan, you must have an approved VA home loan COE. The U.S. Department of Veterans Affairs has a process for requesting a VA home loan COE that you can follow on its website.
Can I Use a VA Loan To Buy a Second Home or Vacation Property?
VA loans are only available to finance a primary residence. You cannot use them for vacation homes or rental properties.
How Long Does It Take To Get Approved for a VA Loan?
The VA loan application process has multiple steps, and the timeline can vary. For the COE application, the U.S. Department of Veterans Affairs tries to respond to all applicants within five business days. Full approval time depends on the lender and application; you also must consider the appraisal and closing time in your homebuying process.
Can I Use a VA Loan More Than Once?
Yes. As a veteran, you can use VA loan benefits as long as you qualify based on the requirements and have remaining entitlement.
Need Help With Your VA Home Loan?
VA loans allow you to obtain an affordable loan and purchase the home you want. With no down payment, no PMI, low rates, IRRRL refinancing, and flexible credit guidelines, a VA loan could be the tool you need to buy your home with confidence.
Veterans Guide provides resources and support to veterans so they can access the benefits they’ve earned. Our team is here to help you explore a VA home loan and achieve your homeownership goals.
Do You Qualify for a Higher Disability Rating?
There are various reasons a person might qualify for a higher disability rating. These include combined disability rating eligibility, inaccurate denial of VA claims, and more.
One way to increase your disability rating is to seek a combined rating for all your qualifying conditions. Veterans with multiple service-connected disabilities or a secondary condition stemming from a service-connected one may be eligible to receive a combined disability rating. A combined rating will entitle you to increased monthly compensation. The VA calculates combined disability ratings by adding your existing disability ratings together in order of severity and then finding the result on the Combined Ratings Table.
If you believe you may qualify for a higher VA disability rating, Veterans Guide can help. Our experienced veterans’ benefits attorneys regularly handle VA cases involving combined disability ratings, VA Board appeals, and other problems affecting veterans with service-connected disabilities. We fight hard to make a strong case for your benefits increase and help secure the compensation you deserve. We’re proud to serve those who have served our country.
