VA mortgages are not for everyone, but they are the best mortgages for many people. Ask yourself these questions, or simply have a mortgage lender run the numbers and help you request your Certificate of Eligibility.
- Do I want to buy or refinance a moderately priced home? VA home loans were not created to help millionaires buy mansions. While there is no government-mandated maximum loan amount, there is a limit on the amount that the government will guaranty. Most (but not all) lenders set their guidelines so that for loans exceeding $144,000, the maximum loan amount is four times the amount of the VA’s guaranty.
- Can I document my income? VA mortgages are fully-documented mortgages, which mean you’ll have to supply proof of income (W-2s and pay stubs and / or tax returns) with your application.
- Is the home I want to buy or refinance my primary residence? VA mortgages cannot be used to buy rental property or vacation homes. You can, however, rent out the other units of a duplex, triplex, or four-plex as long as you live in one unit. Veteran must certify that they intend to occupy the home as their principal residence and move in within 60 days of closing. Your spouse can usually satisfy the occupancy requirement if you’re on active duty. If not married and on active duty, you must occupy the home within 12 months. Intermittent occupancy by single veterans is typically not acceptable, and family members, friends and relatives cannot satisfy the occupancy requirement on your behalf.
- Will I be putting less than 20 percent down on a home purchase, or refinancing with less than 20 percent home equity? Conventional (non-government) home loans exceeding 80 percent of your home’s value require private mortgage insurance (MI), which you must qualify for and pay for. The VA mortgage guaranty is paid for upfront with a funding fee, which you can pay out of pocket or add to your loan amount. The funding fee may be waived for disabled vets.
- Would I like to refinance and take cash out? VA allows cash-out refinancing to 100 percent of your home’s value (most lenders, however, limit cash-out refinancing to 90 percent). Most conventional programs (and FHA as well) limit cash-out refinancing to 85 percent or less. In addition, the added fees for cash-out refinancing with conventional lenders can run to several points, depending on your loan-to-value and your credit score. A VA mortgage may cost less. Note: all non-VA-to-VA refinancings are considered “cash-out,” even if you’re just paying off an old mortgage. In addition, free-and-clear homes cannot be refinanced with VA mortgages.
- Do I expect mortgage rates to have increased by the time I sell my home? VA mortgages are assumable, which mean that your home’s buyer might be able to take over your loan (you’ll need to get approval from the VA or your lender before putting your home on the market). Thebuyer does not have to be a veteran. If your rate is lower than what’s available when you sell, this assumability can make your home more desirable.
- Do I need a little extra help qualifying for my mortgage? VA underwriting guidelines are more flexible than those of most conventional mortgage lenders. For example, if you filed for Chapter 7 bankruptcy protection, you’ll need to wait four years in most cases to qualify for a conventional Fannie Mae or Freddie Mac loan (two years if underwriters feel it was caused by factors beyond your control – this is rare). You’d be eligible for VA financing in only two years, and possibly even sooner if you could prove that the bankruptcy was not your fault. In addition, VA mortgage lenders impose no minimum credit score requirements.