The country can never repay the debt of gratitude we owe the men and women who serve in the military. Soldiers provide us with safety, security, freedom, and prosperity at great personal risk. This is why the federal government developed the VA Loan Program to provide an easy lending option for those who served. If you’re a member of the military, a veteran, or a surviving spouse, a government-backed mortgage could prove beneficial.
What is a VA Loan?
A VA Loan is a mortgage product offered through the U.S. Department of Veterans Affairs to people in the military, those who previously served, and surviving spouses. These mortgages provide unique advantages that further the goal of homeownership. Eligible borrowers can apply for a mortgage that allows them to build a new home, renovate an existing property, or refinance a mortgage. Although the VA does not directly issue the mortgage, it does back loans provided by mortgage lenders.
What are the Benefits of a VA Loan?
People who serve in the military take great risks to protect American freedom. A VA Loan provides benefits to service men and woman making homeownership easier. The following rank among the top reasons to leverage a VA Loan.
- No Down Payment: Military families can apply for a VA Loan without paying 5-20 percent in upfront costs.
- No Mortgage Insurance: Many working class families that can’t afford a substantial down payment are often faced with having to pay for mortgage insurance. A VA Loan doesn’t require this additional cost.
- No Prepayment Penalty: There are no penalties due to an early exit for those who have this type of mortgage.
- Competitive Rates: The VA doesn’t actually set the rates for this mortgage program, so applicants can shop around to secure the best rates and terms offered by lenders.
- Cash-Out Refinancing Option: Some lenders like Peach State offer 100% LTV cash-out refinancing that unlocks your home’s full equity potential.
Limits are also placed on closing costs and the expense may even be deferred to the seller in some cases. These and other perks make VA Loans a great mortgage option.
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Ways To Qualify For a VA Loan
It’s essential that an applicant’s military status meets the requirements for this mortgage product. To move forward with a VA-backed loan, applicants must first apply and receive a Certificate of Eligibility. This proof of eligibility is typically based on meeting the following miliary service thresholds.
- You’re on active duty and have served 90 continuous days.
- You’re a veteran who meets length-of-service requirements, which generally are 90 days in wartime and 181 days in peacetime.
- You completed 90 days of active-duty service or six creditable years in the Selected Reserve or National Guard.
- You’re the surviving spouse of a veteran who died while in service or from a service-connected disability, and you have not remarried, or you remarried after age 57 or December 16, 2003. Spouses of service members missing in action or prisoners of war are also eligible. In some cases, such as being discharged for a service-connected disability, you may still qualify even if you don’t meet the length-of-service requirements.
It’s also possible to gain a Certificate of Eligibility if you received an “other than honorable” discharge in some cases. It may be necessary to petition the VA to upgrade your status. People who worked or served as a public health service officer, a cadet at a military academy, a midshipman at the Naval Academy, a merchant seaman during World War II, or a National Oceanic & Atmospheric Administration officer may also qualify.
Other VA Loan Requirements
Receiving a Certificate of Eligibility is just one step towards receiving a VA Loan. As with other mortgage products, borrowers must meet certain lending guidelines. VA Loans are considered “non-conforming” because the credit requirements tend to be less rigorous than a conventional mortgage. Although local lenders usually have some flexibility, these are relatively standard requirements.
- FICO Score: Lenders generally like to see a credit score in the low 600s or higher. Repayment history may have an impact on how this standard measurement is considered. Some lenders may be more flexible with their credit score requirements. And, there is a possibility that service members may qualify even with a lower credit score and while in Chapter 13 Bankruptcy.
- Debt-to-Income Ratio: Lenders prefer to see a ratio of 41 percent or lower; however, residual income may be a pertinent factor when approving a mortgage.
- Property Requirements: The VA publishes a minimum property handbook to protect veterans from unsafe or subpar housing. The guidelines call for a thorough inspection and structures with leaking roofs, defective mechanical systems, termites, or lead paint may not pass muster.
Qualifying borrowers can take out a VA-backed mortgage as high as $548,250 in many states without a down payment. Like any mortgage, applying may feel overwhelming. Working with a local mortgage professional at Peach State can streamline the process.
How To Apply For a VA Loan
A potential homeowner would be well served to start by applying for a Certificate of Eligibility from the VA. Consider requesting a free copy of your credit report from the three major reporting organizations — Equifax, Experian, and TransUnion. After addressing any errors and taking steps to improve your FICO score, contact a mortgage professional at Peach State to get pre-qualified or to apply online for a VA Loan.
For additional questions about VA Loans and your eligibility, please contact our Mortgage Services Department at 770.580.6098 or mortgage@peachstatefcu.org.
To find out if a VA Loan is the right mortgage for you, download our "How Much House Can I Afford in Georgia or South Carolina?" guide.
