Home LoansVA Loans: How They Work and Qualifications for 2021
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VA Loan Requirements in 2021

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VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). Because VA loan requirements are more lenient than other types of mortgages, military borrowers can finance a home with no down payment and other favorable terms.

These military loans give active-duty service members, veterans and eligible spouses a flexible option for buying, building or refinancing a home. However, VA home loans may come with higher costs.

Here’s what borrowers need to know about VA loan requirements and how to apply for a VA home loan in 2021.

VA loan requirements in 2021

VA guidelines provide more qualifying flexibility than any other type of mortgage loan. Also, special safeguards are built into VA home loans to protect military borrowers from excessive lender fees. Here are the most recent VA loan requirements:

Certificate of Eligibility. The VA loan Certificate of Eligibility (COE) shows your lender that you qualify for loan benefits. It also states your VA entitlement, which is the amount the VA will guarantee your loan for.

Credit score. VA loan requirements don’t include a minimum credit score. However, many VA lenders set the minimum at 620.

Down payment. In most cases, VA home loans require no down payment. However, you may need one if you have a current VA loan, own a property financed with a VA loan that was paid off or owe money on a previous VA loan — even if you no longer own the property.

Residual income. VA lenders use a residual income calculator to determine how much free cash you have each month after paying your monthly obligations from your after-tax income. The requirements vary based on your family size, the size of your home and location of the property.

The table below shows the residual income requirements for loan amounts above $80,000.

Family size* Northeast Midwest South West
1 $450 $441 $441 $491
2 $755 $738 $738 $823
3 $909 $889 $889 $990
4 $1,025 $1,003 $1,003 $1,117
5 $1,062 $1,039 $1,039 $1,158

*Add $80 for each family member, up to a total of 7

Debt-to-income (DTI) ratio. VA home loan requirements recommend a DTI ratio (calculated by dividing total monthly debt — including your housing payment — by your gross monthly income) of no more than 41%. However, the maximum DTI ratio for a VA loan may be higher if compensating factors are present, such as good credit, high residual income or a large down payment.

Property requirements. Homes financed with VA loans must meet the department’s Minimum Property Requirements (MPRs). These guidelines ensure the property is safe, structurally sound and sanitary. VA lenders use a VA-approved appraiser to estimate the value of a home, and the appraiser will note if any obvious repairs are needed. There may be special MPRs depending on the location of the home or for service members in the Specially Adapted Housing program.

Closing cost guidelines. The VA imposes a 1% closing cost cap on VA loans to ensure lenders don’t charge exorbitant fees. In other words, lender charges for origination fees, credit report, flood certification and tax monitoring can’t equal more than 1% of your loan amount. However, discount points (if you choose to pay them) and the VA funding fee are not included in this calculation.

Occupancy. You must live in the home you’re financing with a VA loan as your primary residence. However, you can use the VA interest rate reduction refinance loan (IRRRL) to lower the rate on a rental property you previously lived in.

VA funding fee. VA loan borrowers must pay a one-time VA funding fee. Since VA guidelines don’t require down payments or mortgage insurance on VA home loans, this payment helps to offset the cost of VA loans to taxpayers. Borrowers can choose to pay the funding fee upfront at closing or roll it into the loan amount.

The table below shows the current fees, which vary based on the down payment amount, type of VA loan and whether the VA home loan benefit has been used before.

VA loan type Down payment First-time user fee Subsequent user fee
Purchase/ Construction Less than 5% 2.3% 3.6%
Purchase/ Construction 5% to 9% 1.65% 1.65%
Purchase/ Construction 10% or more 1.4% 1.4%
Cash-out refinance Fee does not change based on down payment 2.3% 3.6%
VA interest rate reduction refinance loan (IRRRL) Fee does not change based on down payment 0.5% 0.5%
Native American Direct Loan (NADL) Purchase Fee does not change based on down payment 1.25% 1.25%
Native American Direct Loan (NADL) Refinance Fee does not change based on down payment 0.5% 0.5%

Veterans with a service-related disability may be eligible for a VA funding fee exemption. You’ll find information about the exemption on your Certificate of Eligibility.

VA loan limits in 2021

Military borrowers no longer have to worry about VA loan limits since the VA recently did away with the maximum VA loan amount it used to impose. However, there may be a cap on the amount the VA will guarantee (pay the lender if you default on the loan) in some cases. This depends on if you have full entitlement or remaining VA entitlement.

Homebuyers with full entitlement can buy, build or refinance a home with no money down and no VA loan limits. The loan amount is only subject to what the lender approves based on credit, income and assets. Full entitlement means that you have not used your VA home loan benefit before, or if you have, that you no longer own the property and no longer owe money on the previous loan.

Borrowers with remaining entitlement — meaning they have used their VA loan benefit and either still own the home or owe money on the loan — can still take out another VA home loan. However, in these cases, the VA will only guarantee loans that meet the conforming loan limit in the county where the property is located.

In 2021, the conforming loan limit for single-family homes is $548,250 in most parts of the country, or $822,375 in high-cost areas. VA loan borrowers with remaining entitlement who wish to buy a home above those limits will need to make a down payment.

VA loan eligibility

Military borrowers seeking a VA loan must meet minimum service requirements for VA loan eligibility. The fastest path to confirming your VA eligibility is to apply for a VA Certificate of Eligibility online. A VA COE shows your lender that you qualify for VA home loan benefits based on your service history.

You’re eligible for a VA home loan if you’re currently on active duty for at least 90 continuous days or if you served:

  • 90 days of active-duty service during wartime
  • 181 days of regular service during peacetime
  • Six or more years in the Selected Reserve or National Guard

VA loan borrowers who don’t meet these minimum service requirements may still qualify for a VA COE if they were discharged for one of the following reasons:

  • Hardship
  • Convenience of the government (you must have served at least 20 months of a two-year enlistment)
  • Early out (you must have served 21 months of a two-year enlistment)
    reduction in force
  • Specific medical conditions
  • Service-related disability

Surviving spouses of veterans may also be eligible for VA home loan benefits and also need to obtain a VA Certificate of Eligibility. In addition to obtaining a VA COE, borrowers must also meet the VA lender’s credit and income requirements.

How to apply for a VA loan

1. Apply for a VA loan Certificate of Eligibility

You’ll need to confirm your eligibility for VA home loan benefits by obtaining a Certificate of Eligibility. You can apply for your VA COE online, by mail or through your lender via the VA’s Web LGY system.

The information you’ll need when requesting your VA COE depends on your status. For example, if you’re an active-duty service member, you’ll need to provide a statement of service signed by your commander, adjutant or personnel officer. Veterans and current or former members of the National Guards and Reserve will need to provide a copy of discharge or separation papers. (DD214 Form).

2. Shop around for a VA lender

The VA only guarantees loans offered by VA-approved lenders, which can be a bank, credit union or private mortgage company. Search for lenders using an online comparison tool or through recommendations from a real estate agent, friend or relative.

Get loan estimates from at least three to five different VA lenders, ideally on the same day because rates change daily. Compare lender fees and rates to figure out which company offers your best deal.

3. Fill out a VA loan application

The VA loan application process is similar to applying for a regular mortgage. The lender will analyze your income, credit history and assets to determine if you qualify. You’ll also give the lender permission to check your credit history. When applying, you’ll need to present your VA COE or work with your lender to help you obtain it.

4. Gather and provide your documents to the lender

Your lender will tell you what information and documents are required. However, you can usually expect VA lenders to request the following paperwork:

  • Copy of your Certificate of Eligibility
  • Copy of your DD214 discharge papers*
  • Statement of active duty from a commanding officer*
  • Statement of points or service (if National Guard or Reserve)*
  • Pay stubs for the last 30 days
  • Last two years of W-2s
  • Most recent 60 days of bank statements

*Typically needed only if your Certificate of Eligibility is not available online.

5. Choose a real estate agent and begin your home search

Shop around for a real estate agent for your VA home loan purchase. Some agents have specific experience working with military families, so ask colleagues and friends for referrals. Commissions and other fees may vary among agents, so be sure you understand the terms of working with your real estate agent before committing to one. Once you choose an agent, you can begin looking for homes in your area and price range.

6. Make an offer on a home

Once you find a home you like, work with your agent to make a strong offer. You’ll likely need to provide your preapproval letter from your lender with the contract. Make sure the purchase agreement includes the “VA escape clause” or “VA option clause.” This clause gives you the option of voiding the contract if the property does not appraise for the purchase price. You’ll work with your real estate agent on including any other applicable terms in your contract.

7. Negotiate terms with sellers

Once a contract is signed, your lender will order an appraisal from a VA home appraiser to determine the value of the home. However, the VA recommends buyers also have a separate home inspection of the property to reveal any issues before purchasing the home. If the inspection reveals necessary repairs, or if the appraisal comes in under value, you and the seller may need to negotiate the sales price or decide who will complete the repairs.

Additionally, the VA lender will order a title search to confirm you can take ownership of the home free of any claims. If the paperwork meets VA guidelines, your lender will clear the loan for closing.

8. Close on your VA loan

You’ll receive a closing disclosure three business days before closing, and you’ll schedule your closing with an escrow officer or attorney, depending on where you live. You’ll also do a final walk-through of the property to ensure any repairs you requested are made and that the home is move-in ready. At the closing, you’ll sign the final VA loan documents, and pay closing costs and the down payment (if applicable). Finally, you’ll get the keys to your new home and officially be a homeowner.

FAQs about VA loan qualifications

Who qualifies for a VA loan?

Active-duty military members, veterans and eligible surviving spouses who meet the service requirements may qualify if they have enough VA entitlement.

Can I get a VA loan with bad credit?

Yes. VA guidelines allow borrowers with major credit events like a foreclosure or bankruptcy to obtain a VA loan as soon as two years after the closing.

Can you use a VA loan more than once?

Yes. Eligible VA borrowers can use home loan benefits to buy more than one home. When a VA-financed home is paid off, the borrower can restore their eligibility by filing and sending a VA Form 26-1880.

Do I need mortgage insurance on a VA loan?

No. VA loans do not require private mortgage insurance (PMI). However, you will pay a VA funding fee to help offset the cost of the program to taxpayers.

Can I buy a manufactured home with a VA loan?

Yes. A minimum down payment of 5% is required, but only if the home is permanently attached to land that you own. A VA loan for a manufactured home may come with more stringent credit and DTI ratio standards.

What are VA home loan rates like?

VA loan rates are often lower than rates on other mortgage types. However, VA lenders determine their interest rates, so as you compare lenders, inquire what their VA loan interest rates are.

How does a VA loan work?

Military borrowers obtain VA home loans through VA-approved lenders — banks, credit unions, or private mortgage companies. The VA guarantees a portion of the loan, so if the borrower defaults on the mortgage, the VA will pay the lender. This guarantee allows VA lenders to offer financing with more favorable terms than with other mortgage types.


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