How to Get a VA Loan in 5 Steps
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If you’re an active-duty service member, veteran or eligible surviving spouse, knowing how to get a VA loan and the requirements involved is good preparation for homeownership. VA loans are backed by the U.S. Department of Veterans Affairs (VA) and require some extra steps. Doing your homework before you shop with VA lenders may help make the VA loan process easier to navigate.
You may have VA loan eligibility if you served:
- 90 consecutive days during wartime
- 181 days during peacetime
- More than six years in the National Guard or Reserve
The easiest way to find out about your VA loan benefits is to request an online VA certificate of eligibility (COE). If you can’t get your COE online, you may need to fill out a VA Form 26-1880 and mail it, along with a copy of your DD Form 214, to the address listed on the form. The latter form is a Report of Separation service members typically receive after a military discharge.
The lender will enter your COE information into a VA entitlement calculator to determine the maximum VA loan amount you qualify for.
- No down payment. In most cases, a down payment isn’t required. Conventional loans require a 3% down payment, while the FHA minimum is 3.5%.
- No minimum credit score. The VA lender’s handbook doesn’t set a minimum credit score, however, most VA-approved lenders (who issue the loans) require at least a 620 credit score.
- No federal debt defaults. Lenders will run your information through the Credit Alert Interactive Reporting System (CAIVRS) to ensure you haven’t defaulted on federal debt such as student loans or past VA loans.
- A two-year employment history. Although two years of steady job history is the VA guideline, recently discharged military borrowers may qualify for an exception.
- A maximum debt-to-income (DTI) ratio of 41%. Your DTI ratio is a measure of your total monthly debt (including your new mortgage payment) divided by your before-tax monthly income. The VA’s maximum DTI ratio is capped at 41%. Exceptions are possible, though, if you meet the VA’s residual income test.
- Residual income. Unique to VA loans, residual income calculates how much free cash you have each month. The requirement varies based on home and family size, and location.
- VA funding fee. VA loans don’t require mortgage insurance to protect lenders if you default on your loan. Instead, you’ll pay a VA funding fee equal to 0.5% to 3.6% of the loan amount. The fee helps offset the cost of the VA loan program to taxpayers. Military borrowers with service-related disabilities may qualify for a VA funding fee exemption.
- No loan limits. Standard conforming loan limits don’t apply to VA borrowers who have full entitlement. If you have “remaining” entitlement, however, VA loan limits will kick in. Plus, lenders may set their own maximum loan amounts, so ask your loan officer what the company’s limits are if you’re buying in a high-cost area.
- VA home appraisal. Your home will need a VA appraisal, which involves more steps than a standard appraisal. The home must meet VA minimum property standards to ensure the home is safe, sound and sanitary.
- Primary residence occupancy. You must live in a home as your primary residence to qualify for VA financing.
- Limits on co-borrowers with zero down. The VA guarantees loans with zero down payment only to military borrowers and eligible spouses. If you co-borrow with someone who isn’t a spouse or eligible veteran, you may have to make a down payment.
As you shop around, look closely at the quoted VA closing costs. The VA lender’s handbook sets a cap of 1% of your loan amount on these fees so if you see loan estimates with higher fees, keep shopping.
Also called an escape clause, it’s a standard VA form signed by all the parties in the transaction, and gives you the legal right to cancel if the appraised value of the home is lower than the sales price. The seller must return any earnest money you paid upfront with no penalty.
Once the VA appraisal inspection and report is complete, your lender will give your loan a final stamp of approval. You’ll receive a closing disclosure three business days before your closing date and do a final walkthrough of the home. At closing, you’ll sign final paperwork, pay any closing costs and officially become a homeowner.