VA Home Loan Options Overview

Updated: April 26, 2022

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    The VA home loan is an important benefit. It’s offered to currently-serving military members who have enough time in uniform to qualify. It’s also offered to veterans, and surviving spouses of qualifying service members who have died as a result of military service.

    What does the VA home loan program offer? There are VA mortgages available to buy, build, or refinance homes using a VA loan which comes with no-money-down options and no VA-required private mortgage insurance.

    There are VA cash-out refinancing loans, VA Interest Rate Reduction Refinances, and VA home loans that feature the ability to add extra funds for approved energy-saving upgrades to the property.

    VA mortgages do require the payment of a VA loan funding fee, but this fee is waived for loan applicants who receive or are eligible to receive VA compensation for service-connected medical conditions.

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    How VA Home Loans Work

    Once you become eligible for a VA mortgage, you can apply for one through any participating lender. The lender can help you obtain your VA Certificate of Eligibility from the Department of Veterans Affairs–this document is required for loan approval.

    Once you have your VA COE and your lender can start working with you on your mortgage, you’ll need to discuss terms, negotiate an interest rate, and work out the other aspects of the transaction.

    The VA mortgage loan is a very useful economic benefit whether you are a first-time home buyer or have owned property before.

    The VA loan program requires the applicant (or the applicant’s spouse in the case of eligible surviving spouses) to meet a minimum time in service to be eligible.

    Today’s new recruits should expect to spend at least 90 days on active duty (not basic training or advanced training) before they can be considered eligible to apply for a VA mortgage.

    Note that “eligible to apply” for a VA home loan is different than being approved or even pre-approved for the mortgage.

    Being eligible for the VA home loan benefit does not equal VA loan approval. Borrowers must credit-qualify for the VA loan the same as any other mortgage or major credit line. You will be required to financially qualify for the loan based on your FICO scores, employment history, and your credit report.

    Where VA refinancing is concerned, the same rules apply in most cases, though the VA Interest Rate Reduction Refinance Loan has no VA-required credit check or appraisal in typical cases.

    Important Things To Know About Applying For Your VA Loan

    VA home loans are unique. Here are some of the things you will need to know before you apply:

    • VA loans have no loan limit if you have 100% of your entitlement to use on the loan;
    • Those who do not have 100% VA loan entitlement are subject to VA loan limits;
    • VA loans have a zero-down option in typical cases, but some borrowers choose to make a down payment anyway as it reduces the amount of the required VA loan funding fee.
    • VA mortgages are assumable; you will need the lender’s participation, but you can allow someone else to assume the mortgage if necessary.
    • VA home loans permit the purchase of homes with between one and four living units but you must be an owner-occupier. Occupancy is a condition of loan approval.
    • You cannot use VA mortgages to purchase property to be used as a hotel, frat or sorority house, bed-and-breakfast, etc.

    Other Things To Know

    The VA guarantees the mortgage once the loan is approved. The Department of Veterans Affairs does not lend the money to the borrower, that is done through a participating lender. There is one exception to the above; VA does lend money directly to qualifying applicants who are purchasing homes as part of the VA Native American Direct Loans program.

    VA loan interest rates are negotiated between the lender and borrower; the VA does not set or regulate VA loan interest rates.

    There is only a requirement that any rates set for a VA mortgage be “reasonable and customary” for other loans similar to it in the marketplace.

    Also, borrower should know that the interest rate offered may be affected by FICO scores and credit history–if you are worried about your ability to qualify for a loan, speak to a loan officer today to learn what it may take to qualify or what improvements you need to make to qualify for the most competitive interest rates

    For most VA home loan and refinance loans, the option to include extra funds for approved energy-saving improvements is possible under the VA Energy Efficient Mortgage (VA EEM) option.

    The borrower and lender will work together to determine the nature and cost of the improvements and the borrower may be required to work with an approved energy consultant to determine the actual savings of the upgrades or improvements paid for under the VA EEM.

    All VA loans have an occupancy requirement. Borrowers cannot buy or refinance investment properties with a VA mortgage loan.

    Borrowing With Others

    VA loans are possible between a military member and non-military borrowers, but the VA only guarantees the veteran/servicemember’s portion of the mortgage.

    The VA borrower cannot take a disproportionate share of the financial responsibility for the mortgage, and the VA will only charge the VA borrower’s entitlement for their specific portion of the loan. The only exception to this is in cases where a married couple applies for a VA mortgage and only one of them serves in uniform.

    In those cases the married couple is not treated like a servicemember and civilian applying together–the VA mortgage for the legally married couple is processed for the full entitlement of the mortgage loan.

    VA Loan Options: New Purchase Loans / “Forward Mortgages”

    VA loans are available to purchase homes up to four units; existing construction homes, condos, mobile and manufactured housing, modular homes and other properties can be purchased as long as they are taxable as “real property” and are permanently affixed to an approved foundation. You cannot use a VA mortgage to purchase RVs, houseboards, or mobile homes that don’t meet VA requirements including being fixed to a permanent foundation after delivery.

    You can also use a VA mortgage to build instead of buying an existing home.

    VA Loan Options: VA Construction Loans

    VA home loans are also available to build or assemble a home on land purchased for that purpose as part of the VA loan or on land the borrower already owns. VA mortgage loans are not available for unimproved land without a plan to build.

    VA construction loan options include something known as a VA one-time close construction loan which combines the traditional two loans and two closing dates into a single mortgage loan for both the construction of the home and the mortgage itself.

    VA One-Time Close mortgages may have higher lender requirements for credit scores and certain restrictions on property types, again, depending on the lender. But these loans can be a big advantage for those who want a house built to suit rather than buying an existing property.

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    VA Loan Options: VA Loans For Farm Homes

    VA loans are technically available for “farm residences” but the loan is only guaranteed for the residential portion of the land and valuation of the commercial portions of the property is not permitted. The Department of Veterans Affairs does not allow VA mortgages for farm businesses.

    VA Loan Options: VA Mobile Home Loans

    VA loans permit the purchase of a mobile home and the land the home will be placed upon with a permanent foundation. As mentioned above, VA loans cannot be used for recreational vehicles (RVs) or houseboats; these cannot be legally classified as real property or affixed to a permanent foundation and do not qualify for VA loan financing.

    The specific types of property you may purchase with a VA loan may vary depending on the lender. Not all participating VA lenders offer all available VA loan products. Some housing markets do not support mobile home loans, modular homes, etc. and loans for these types of housing may be harder to come by in certain areas.

    VA Refinance Loan Options: Cash-Out, Interest Rate Reduction Refinance Loans

    VA home loans can be used to refinance an existing mortgage. For VA cash-out refinance loans, the mortgage to be refinanced does NOT have to be a VA home loan; conventional, USDA, FHA and other mortgages may be refinanced with a VA mortgage loan. For VA IRRRLs (see below) the borrower must be refinancing an existing VA mortgage.

    VA Interest Rate Reduction Refinance Loans (VA IRRRL)

    VA refinance loans called Interest Rate Reduction Refinancing Loans (VA IRRRLs) can be used to refinance into a lower mortgage payment and/or interest rate, out of an adjustable rate mortgage (ARM loans), and into shorter loan terms.

    In general, the VA IRRRL is required to provide some tangible benefit to the borrower such as those listed here, and no cash back is permitted on this transaction. There is in most cases no VA-required appraisal or credit check with these refinance loans, but lender standards may apply and your lender may require one or both depending on circumstances. Certain VA IRRRLs may feature a VA-required credit check in cases where add-ons to the loan increase the monthly payment by a certain percentage.

    VA IRRRLs To Refinance A Delinquent VA Loan

    If a VA borrower falls behind on mortgage loan payments, the VA loan program has a refinance loan option to help the borrower catch up on the delinquency and avoid foreclosure.

    The VA Lender’s Handbook states of these loans, “Any IRRRL made to refinance a loan that will be 30 days or more past due as of the date of closing, must be submitted for prior approval” to the Department of Veterans Affairs.

    In such cases, the lender must determine that the causes of the delinquent payments have been resolved and that the borrower is willing to continue making monthly mortgage loan payments based on the refinanced loan.

    VA Cash-Out Refinance Loans

    VA refi options include the ability to pull cash out of the home using a VA Cash-Out Refinance Loan. These refinance loans require a new appraisal and credit check and can be used to refinance an existing mortgage (FHA, VA, conventional, etc) assuming the borrower financially qualifies.

    VA cash-out refinance loans must pay off the existing mortgage first before giving cash back to the borrower. The amount of cash out will depend on the newly appraised value of the home, how many mortgage payments the borrower has made to date, and whether the borrower chooses to finance certain costs associated with the loan where applicable.

    VA cash-out refinance loans like all VA refinance mortgages, are for principal residences only and the borrower must certify that he or she has been using the property as their home address prior to application time.

    Other VA Refinance Loans

    The VA official site has a list of other VA refinance loans that are possible, including:

    • Construction loans.
    • Installment land sale contracts.
    • Loans assumed at interest rates higher than a proposed refinance.

    The rules on these types of loans state that the mortgage “may not exceed the lesser of:

    • The VA reasonable value plus the VA funding fee, or,
    • The sum of the outstanding balance of the loan to be refinanced plus allowable closing costs (including the funding fee) and discounts.
    • The cost of energy efficiency improvements can also be added to the loan.

    There are no additional guidelines in the VA Lender’s Handbook (VA Pamphlet 26-7) addressing these loans; lender standards and requirements will apply. Participating VA lenders may offer all, some, or none of these loans.

    How To Apply For A VA Home Loan

    Potential VA loan applicants need to apply for a Certificate of Eligibility for the VA loan benefit if they have not already-this can be done with the help of a participating lender or borrowers can apply at the VA eBenefits official site. Then it is a matter of house hunting, selecting a home to purchase, and filling out the VA loan paperwork with the participating VA lender of the borrower’s choice.

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    Written by MilitaryBenefits