VA Mortgage

The VA Mortgage Loan is one of the greatest benefits you walk away with after serving time in the military. It offers two things, 1) a loan with no down payment and 2) a typically better-than-average interest rate. Consider this:

Homebuyers are typically required to provide a down payment, usually equating to 20 percent of the purchase price in order to buy a home. So on a $250,000 home, a 20 percent down payment would be $50,000.  That is a lot of cash. If you use the VA loan benefit you pay ZERO!

That gets your attention right?

Learning about mortgages is like one of those safety briefs your commander would give on a Friday afternoon. Even though you saw his lips moving, your mind was occupied by thoughts of awesome weekend plans. We understand, the topic is dry. But knowledge is power here. The VA Loan is a big deal and gives you the go to become a homeowner.

So with that, let’s dive in and learn about the VA Loan!

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Download Neighborhood Comparison Kit

  • VA Mortgage Guide
  • Mortgage Lender Comparison Chart

Step 1: What is the VA Loan and Am I Eligible?

The VA Loan is a zero down payment mortgage that is backed by the Veterans Administration. The VA doesn’t provide the loan, rather they act as the security on the loan should you default on paying your mortgage.

Here’s how a VA Loan and a conventional mortgage compare:

VA Loan vs. Conventional Mortgage

  • Zero percent down vs. Up to 20 percent down
  • No PMI vs. PMI Required
  • Low Rates vs.  Higher rates
  • Relaxed qualifications vs. Standard qualifications

You’re eligible to use the VA Loan if one or more of the following applies to you or your spouse:

  • Served on active duty orders during wartime for 90 consecutive days
  • Served on active duty during peacetime for 181 days
  • Served in the National Guard or Reserves for six years
  • Were discharged from the service under honorable conditions
  • Are the spouse of a service member who died in the line of duty or as a result of a service-related injury or disability

But taking advantage of the VA Loan benefit takes more than your good word. You’re required to get a Certificate of Eligibility (COE) which proves your eligibility. Your lender can help you obtain this certificate or you can get it yourself by completing a, you guessed it, Certificate of Eligibility Request Form (VA Form 261880).

Login to www.ebenfits.va.gov using your CAC card to pull the COE yourself.

Keep in mind that once you have the COE, you need to have a stable source of income that will cover your monthly expenses and the mortgage payment.

Pro tip:

Even with the VA security, your lender will expect you to have a certain amount of discretionary income each month.

Step 2: The Fine Print – Regulations and Fees

Wait, don’t skip this section. Even though it says fine print, which we all know equals boringness, it’s really important to understand the details of the loan.

There are limits to the VA Loan, including:

  • In most areas the VA Loan amount is limited to $417,000
  • You need to provide a down payment for the rest of the purchase price of a home if you exceed the VA Loan limit (This is considered a jumbo loan)
  • The property you’re purchasing must be your primary residence
  • You must have good credit – the score is judged on a case by case basis

Funding fees are still part of the transaction! Keep the following in mind:

  • The funding fee pays for the program
  • It’s roughly 2.15 percent of the purchase price for your first VA Loan
  • It’s rolled into your mortgage so you don’t have to pay out-of-pocket for it
  • The fee goes up to 3.3 percent the second time you use the VA Loan
  • The VA limits the amount of closing costs for veterans and allows for the seller to pay most (if not all) of those costs

Pro tip:

The Funding Fee is waived if you collect 10 percent or more disability. Your disability pay is also considered part of your income.

Step 3: Understand Your Entitlement

If you had to take a math course back in school then it’s about to come in handy. As we mentioned earlier, the VA Loan limit is $417,000. But that’s not as cut and dried as it seems. Your VA entitlement is actually $104,250 (unless you’re in a jumbo loan eligible location). That $104,250 is broken into a first and second entitlement. The first is $36,000 and the second is $68,250. 

  1. The VA secures about 25 percent of the loan. That means it uses that amount of your entitlement.

For Example: If you buy a house for $200,000, you’ve used $50,000 of your $104,250 entitlement. That leaves you with $54,250.

  1. The 2nd Tier Entitlement has it’s own set of conditions:
  • You can use the remainder of your entitlement for a second loan
  • The funding fee will be higher the second time (that 3.3 percent we mentioned earlier)
  • The property you’re buying must be your primary residence
  • You’re still eligible for no down payment if it’s within the 2nd Tier Entitlement amount
  • There are limitations on how small your loan can be
  1. Restoring Your Entitlement is Possible

If you decide to sell your home you used the VA mortgage on when you move, you will see two things happen:

  1. You will reinstate whatever portion of your entitlement you used
  2. You will reinstate the full $417,000 benefit, which you can use on your next purchase

Pro tips:

The entitlements are complex. While our explanation makes it sound like it’s simple to have two VA mortgages, a certain amount of debt-to-income ratio is required. In addition, some lenders may require proof that your first property is rented out (like a signed lease) so it’s clear you’re not on the hook for paying two mortgages.

You can restore your entitlement on the same day you sell your home. For example: You can sell and buy a home on the same day using your full VA Home Loan benefit/entitlements.

Step 4: When to Apply for a VA Loan

Keep in mind that your lender will have their requirements for when you’re allowed to apply for the loan, and will explain those to you in the process.

If you’re more than 90 days out from buying a home:

  • Call your bank to get an estimate on the amount you’ll be approved for
  • Be prepared for the bank to run your credit at this point (they may or may not do it)
  • If they run your credit at this point, you’ll get a more realistic idea of your spending power
  • Having your credit run at this point will not negatively impact your credit

If you’re within 90 days of buying a home:

  • Get a pre-approval letter in-hand (gives you leverage in the negotiation process)
  • Start shopping for a home in earnest
  • Stay within budget when looking for a home

Pro tip:

Do not default to your bank for a VA Loan. Be sure you interview multiple lenders before going too far down the road. Bonus: We have included a lender comparison chart in our guide.

Step 5: Get Your Paperwork in Order

The bank will dig deep into your finances during the mortgage process. Make it easier on yourself and your bank by scanning the following items and putting them into a digital folder:

  • Bank Statements (last 2 months)
  • Tax Returns (last 2 years)
  • W-2s (last 2 years for both spouses)
  • Other Investment Documentation (stocks, bonds, 401k, etc.)
  • Proof of Income (Get a hold of your service member’s LES and your pay stubs)
  • Orders (If you’re buying a home in a location you’re PCS’ing to)
  • Leases for any investment properties

Pro tip:

If you’re buying while PCS’ing, be sure this paperwork is not packed in boxes and on the moving truck!

Step 6: Find the Right Lender

Do you know where to start looking for a lender? Should you go with a local lender or a larger bank? These are just a couple of the questions you should ask when starting your search for a lender. But here are a couple other things to keep in mind during your quest:

  • Almost all lenders can offer VA Loans
  • If you’re utilizing the VA Loan, the process will be smoother if you go with a lender that specializes in VA Loans
  • Your realtor is a great resource for lender recommendations
  • Don’t limit your search to local lenders! Larger national banks can also have competitive VA Loan programs
  • Look for the best loan and interest rate, and great customer service
  • “Shop around” for the best deal
  • Put your potential lenders through an interview process (We’ve attached questions in the full download for you! You’re welcome)
  • A good lender should be able to go through the entire loan process with you from the time you get pre-approved to your closing date

Pro tip:

When working with a lender, dig into their underwriting process. A bank who keeps all of their underwriting in-house typically results in better customer service. Working with a lender that underwrites your loan before you even look at a house provides you with the security that you first qualify for the home.

And just like that, you’re done! See, learning about the VA Loan isn’t all bad. We hope this gave you the foundation to understanding the VA Loan process. For a fuller description of the process, along with some lender interview questions and a comparison sheet, you can click above to download it now.

If you’d like, you can check out our Military Homebuyers Guide, just to make sure you’re ready to buy a home!

Until next time, we’ll be bringing military families home!

Download Neighborhood Comparison Kit

  • VA Mortgage Guide
  • Mortgage Lender Comparison Chart