Is a VA Loan Right for Me?

Whether you’re buying your dream home or refinancing your existing home, deciding on the right loan product is a crucial decision.  It is an important step in laying the foundation for your family’s financial future.

There are a lot of loan choices.  The one that was right for your friend or family member may or may not be right for you.  It truly depends on your situation and your financial goals.

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Finding the right loan unlocks your financial future

Am I Eligible for a VA Loan?

 

Thank you for your service to our country.  Your military service has earned you, and your beneficiaries, valuable benefits; and, is one of the qualifications for obtaining a VA loan. By meeting one or more of the following conditions, you may qualify.

 

  • Have you served 181 days during peacetime (Active Duty)?
  • Have you served 90 days during wartime (Active Duty)?
  • Are you the spouse of a service member who was killed in the line of duty or as a result of a condition due to their military service?
  • Have you served six years in the Reserves or National Guard?

A certificate of eligibility (COE) is required before securing a VA loan. Generally speaking, a COE can, be obtained at your local Veteran Affairs office or by filling out a certificate of eligibility request form and your lender will submit electronically to the VA.

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What Types of Loans Does VA Offer?

 

VA offers fixed rate loans with terms ranging from 10 years to 30 years.  VA also offers Adjustable Rate Mortgages, commonly referred to as ARMs.  In addition, there are renovation loans where you can buy an existing property and renovate the home.  It is important to note that the Veterans Administration does not make loans directly, but, in fact, guarantees loans made by lenders.

 

Do I Have to Make a Down Payment?

 

A VA Loan, in most cases, will not require a down payment.  However, VA will allow you to make a down payment if you wish.  The funding fee is lower if you make a larger down payment. The reductions come at 5% and 10% down payments.   If you are putting down a larger down payment you may want to consider other loan options where a funding fee is not required.  This is particularly true if you are making a 20% or larger down payment.

 

There are also other loans with little or no down payment required.  In some areas, you may be eligible for grants that will contribute towards your down payment and/or closing costs.

 

 

What is A Funding Fee?

 

Above we discussed that the VA itself does not make loans but guarantees them.  When you take out a VA loan you pay a funding fee to the lender that they turn around a pay to the VA.  This fee goes into a pool that the VA uses to pay off loans that default.  The funding fee is paid by all Veterans that take out a VA loan based on a sliding scale.  The funding fee is waived in its entirety for eligible disabled Veterans.

There is also a reduced funding fee for Veterans doing a VA Interest Rate Reduction Refinance Loan (VA IRRRL ~ pronounced VA earl).

 

Type of Veteran Down Payment Funding Fee 1st Time Getting a VA Loan Funding Fee 2nd or more time getting VA Loan
Regular Military None 2.15% 3.3%
5% or more (up to 10%) 1.5% 1.5%
10% or more 1.25% 1.25%
Reserves/National Guard None 2.4% 3.3%
5% or more (up to 10%) 1.75% 1.75%
10% or more 1.5% 1.5%

 

 

Can I Have More Than One VA Loan?

 

VA has no restrictions on the number of loans that you can have.  They only limit the amount that they will guarantee.  They also look at how much you can afford.  This is based on your qualifying income, your debts, and on your residual income.

 

Your qualifying income is the income that the lender can use to count towards approving your loan.  This is generally anything that is stable and will continue for at least three more years.  If it is paid under the table, you haven’t received it on a regular basis, or you can’t prove that you receive it then the lender won’t be able to count it.  If it won’t continue for the foreseeable future then the lender won’t be able to use it either.

 

Residual income is the amount of money that is left over each month after all of your major expenses are paid.  This includes housing, taxes, debts, and childcare.  Another word for residual income is disposable income.  VA want to make sure that you have money for things like gas, groceries and other family needs.  VA requires that, based on area of the country where you live and family size, that you have a specific amount of residual or disposable income each month.

 

As A Veteran, What Else Should I Consider?

 

Moving when you are on active duty takes a bit more planning than when you are a civilian.  A Permanent Change of Duty Station (PCSing) has particular nuances for your loan as well.  Be sure to think about any changes in pay that will accompany your move such as BAH or COLA changes that will differ from one location to another that will impact your budget.  Teresa Cowart (Twitter @TeresaCowart) has put together a list of things to help make Military Moves easier.

 

You may have heard that in a tight housing market the seller wants to see a larger down payment in order to accept your contract.  In markets where VA loans are common most sellers are educated by their agents and many sellers are Veterans themselves.  In other markets, a seller’s first reaction could be negative.  Here is a resource from Bill Gassett explaining that a lower down payment doesn’t mean that a buyer isn’t qualified that you can include with your offer.

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There are many aspects to buying a home and you should educate yourself on them all.  Lynn Pineda offers advice on how to handle common home buying pitfalls  and Paul Sian shares a guide to important mortgage terms you need to know   It also never hurts to make certain your credit is up to snuff before applying for your home loan.

 

Remember, it’s more than money; it’s your future.

 

 

22 thoughts on “Is a VA Loan Right for Me?”

  1. Great information for any VA. I have worked with several clients who had a VA loan. They really appreciated the loan and it help them get the house they wanted at low upfront cost. Thanks for sharing the details about the VA loan process.

  2. Great post and many don’t know… the hoops that you have to jump through. You’d think the VA would be more aware.. or maybe it was the company my honey worked for… that the military is transient. My point… we needed 2 years of overtime history… for the house we were buying in Texas 1 year after we left Virginia. The Naval Shipyard in Portsmouth, VA HR staff would NOT give him the paperwork he needed even with ALL confirmations of who he was to get what he needed for the VA loan unless… he did it in person. Ummm, military and paramilitary peeps are TRANSIENT, they don’t stay in one place… we had to get conventional loan. Ended up refi a year later.. but worst experience and continue misery of Texas. Freaken Aholes at the HR Dept of the Portsmouth Naval Shipyard for being lazy! Seriously. Sorry, got off tangent from your post. LOL

  3. Christy, thanks for all your information. While I didn’t think it would every apply to me, I suddenly found myself applying for a loan (not a VA one). So, you never know when someone’s information is going to come in handy.

  4. That’s cool that VA loans don’t typically require a down payment. That seems like it’ll make things easier. For the most part, I think that loans can be really helpful, but you just gotta be smart when you get one.

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