VA home loans provide active duty military members and veterans with the opportunity to purchase a home at competitive rates, and often with no money down. Most of the time a VA loan is the best way for military members and veterans to purchase a home, but it does come with conditions. Knowing the facts about VA home loans will help determine whether buying a house with a VA loan is the best option for your family.
In order to apply for a VA loan, you must obtain a Certificate of Eligibility from the Department of Veterans Affairs. This may be done online through the VA, making it easy for private mortgage lenders to determine whether you are VA loan eligible.
In addition to receiving a certificate of eligibility for a VA loan, the property you purchase must meet certain requirements in order to be VA loan eligible. Many foreclosures or properties that would qualify as fixer-uppers do not meet the minimum requirements for a VA loan. These requirements focus on making sure that a home is structurally sound and could be lived in comfortably in the state in which it is purchased. For example, if a home is missing flooring or has a bathroom that needs extensive repairs, it will not qualify for a VA loan.
The price of home you can purchase with a VA loan varies with personal income. The specific amount you are able to borrow is determined by your monthly salary, which must be more than 35% of your monthly mortgage payment, tax payments and any other monthly debt payments. For example, to qualify for a $150,000 30-year loan when you have $500 a month in additional debt payments, you must make at least $2100 a month.
The passage of the the Blue Water Navy Vietnam Veterans Act changed the structure of VA loan funding fees, which are a cost of doing business for the borrower applying for a VA mortgage. Funding fees were, prior to the year 2020, charged at different rates for active duty, Guard, and Reserve members, with a higher fee required for second-time or subsequent use of the VA loan benefit.
The VA loan funding fee for forward loans (not refinance or reverse mortgages) is lowest for first-time VA loan borrowers who make a down payment of at least 10%. There is usually no down payment requirement, but borrowers who choose to make one get the benefit of lower VA loan funding fees.
All recipients of VA home loans must pay the funding fee in order to obtain a VA loan unless they are exempt because they receive or are eligible to receive VA compensation for service-connected disabilities. The amount of the fee is based on the following scale:
- First-time use with no money down – 2.3%
- 5 percent down – 1.65%
- 10 percent down – 1.4%
Second-time use VA loan funding fees are as follows:
- First-time use with no money down – 3.6%
- 5 percent down – 1.65%
- 10 percent down – 1.4%
Yes, you read those scales correctly–according to VA.gov, the fees for VA loans with down payments are identical for first-time or second-time use.
Who Doesn’t Pay The VA Loan Funding Fee
Veterans with service-connected disabilities and surviving spouses are exempt from the fee. The VA provides a table breaking down who is exempt, and that table includes an update, effective Jan. 1, 2020, which includes Purple Heart recipients (see below):
- Veterans receiving VA compensation for service-connected disabilities.
- Veterans entitled to receive VA compensation for service-connected disabilities, but receive retirement pay or active service pay instead.
- Surviving spouses of veterans who died in active service or from a service-connected disability.
- Service members on active duty who provide (on or before the date of loan closing) evidence of having been awarded the Purple Heart.
Other Fees And Expenses
In addition to the first-use fee, Veterans are responsible for paying closing costs. The closing costs include, but are not limited to:
- VA-approved appraisal
- Recording fees
- Title insurance
- Hazard insurance
Instead of paying an itemized list of closing costs, you may choose to pay a one percent fee to the lender to cover all of the closing costs. If you wish to have your closing costs rolled into the total cost of your mortgage, you must increase the amount of your mortgage and have that decision approved by the lender.
Keep in mind that the amount of the VA loan may not be more than the appraised value of the property, so if you purchase a home at the amount it appraises for, you will not be able to roll closing costs into your mortgage
What can/can’t you buy with a VA loan?
Can Buy: Primary residence, single family home, condo, townhome, modular home, mobile and manufactured homes (must have land included), multi-unit property (must live in one of the units). You can also build a home, purchase and improve a home or refinance.
Can’t Buy: RV, houseboat, home abroad, investment property, second home, vacation home, farm that is not a primary residence, Co-ops, unimproved land with no plans to build a home, using as a business loan.
Do I need to occupy the home with a VA Loan?
Yes, a home purchased with a VA loan must be your primary residence. VA loans are not available for second homes or investment properties.
How do I know what the fees are?
All lenders are required by federal law to disclose fees within three days of your application.
Can I pay off a VA loan early without any extra fees?
Yes, there are no prepayment penalties on VA loans. You can pay off a loan early or faster than the minimum monthly payments.
How many VA loans can you have at one time?
It’s possible to have two and even more than two VA loans but it’s not common. The most common reason is when a VA homeowner has to move due to military reassignment and wants to keep their home and buy another. Provided the VA homeowner has VA loan entitlement, aka second-tier entitlement, the VA will typically allow a second home purchase up to the remaining entitlement available. Veterans would still need to qualify.
Can I use a co-signer for a VA loan?
Only if the co-signer is a spouse or another veteran.
Do all lenders offer VA loans?
Not always, select a VA approved lender and understand that different lenders have different closing costs and fees.
Can I build a home with a VA Loan?
Yes, but restrictions apply which make VA construction loans more difficult to get approved but it is possible.
Can I renovate or rehab a home with a VA Loan?
The VA does guarantee loans to buy, improve and renovate existing property. VA approved home improvements include roof repairs, flooring repair, HVAC systems, bath and kitchen remodels.
Can an ex military spouse get a VA loan?
An ex-spouse who is not a veteran cannot get a VA loan on their own. This does not apply to surviving spouses who can be eligible for a VA loan under the The Honoring America’s Veterans and Caring for Camp Lejeune Families Act (H.R. 1627).
Can a VA loan be used to buy a home abroad?
VA loans can only be used in U.S. territories including American Samoa, Guam, the Northern Mariana Islands, Puerto Rico and the U.S. Virgin Islands. Keep in mind it needs to be a primary residence. Investment properties and vacation homes do not qualify.
Can a VA loan be used to buy an RV?
No, RVs, houseboats and any property without a fixed, permanent foundation does not qualify for a VA loan.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News