Knowing if you meet the requirements for a VA loan is helpful when purchasing or refinancing a home
If you are a veteran or active duty military personnel, then you may be eligible for a VA home loan. These loans offer many benefits, including competitive interest rates and no down payment requirements.
In this article, we will discuss the latest VA loan requirements and what you need to know in order to qualify for one of these loans in 2023.
First, lets go over the main benefits of a VA Loan:
- No down payment required
- Competitively low interest rates
- No need for Private Mortgage Insurance (PMI)
- Easy to qualify for
- Lenient credit requirements
- Is there a down payment for a VA loan?
- VA loans have low rates and is a fixed rate mortgage
- Mortgage Insurance on VA loan
- Funding Fee
- Closing costs for VA buyers
- VA Property requirements
- VA credit score requirements
- VA Debt-to-Income Ratio Requirement
- Income requirements for a VA loan
- Are there loan limits for a VA loan?
- Who is eligible for a VA loan?
- Are Children of Veterans Eligible for VA Loans?
- VA Loan Refinance Options
Is there a down payment for a VA loan?
VA loans do not require a down payment, though borrowers may choose to make one if they wish.
Making a down payment is wise if you can afford it, because it will reduce your interest payments over the life of the loan and your funding fee may be lowered.
VA loans have low rates and is a fixed rate mortgage
The interest rate on VA loans are lower than the traditional conventional mortgage.
They also come with a fixed rate for 30, 20 or 15 years. Fixed rate means that the payment won’t change for the life of the loan.
Mortgage Insurance on VA loan
Most mortgage programs typically require mortgage insurance if a down payment of less than 20% is being made, but the VA loan doesn’t have a mortgage insurance requirement.
Borrowers must pay a funding fee to help offset the Veterans Administration’s costs for the VA Loan program.
The fee is generally 2.3% of the loan amount for first-time borrowers, and 3.6% for subsequent loans. If a down payment is made, this fee can be lowered.
If you are receiving VA disability, the funding fee is waived.
Closing costs for VA buyers
There is a misconception that VA home buyers don’t have to pay any closing costs.
This is not a true statement. VA does not pay your closing costs on your behalf.
Closing costs include appraisal fees, homeowners insurance, property taxes, escrow fees, lender fees, etc.
These fees need to be paid for at closing and can range anywhere between 3%-5% of the purchase price.
More closing cost info:
VA Property requirements
The property must be used as your primary residence. Land loans or rental property are not allowed.
You can also purchase a 2-4 unit property but you are required to occupy one of the units as your primary residence.
VA credit score requirements
The VA itself doesn’t require a minimum credit score BUT the mortgage lenders who finance VA loans do.
Coole Home has a VA minimum score of 620. On a case by case basis we can go lower.
VA Debt-to-Income Ratio Requirement
The maximum debt-to-income ratio for VA loans depends on each individual file. It is based on your credit score and the health of your finances. Some borrowers can go as high as 60% while others may be capped at 42%.
If you’ve had a bankruptucy, foreclosure, or just have poor credit, you are typically going to need to meet additional requirements.
Income and job requirements for a VA loan
Lenders want to make sure you can afford the mortgage payment, along with other monthly necessities and debts.
Lenders want to see that your income is stable, consistent, and reliable.
If you are self employed, you’ll need to be self employed for 2 years before you can qualify.
If are you a W2 employee and you have stable employment, you’ll need to provide the past 30 days of paystubs and 2 years of W2s.
If you are retired, a copy of your award letters or retirement stubs will be needed.
GI Bill is not an acceptable source of income, since this income is only for a short period of time. Lenders typically want to see that your income is likely to continue for the long term, and since the GI Bill is only for a few year, it isn’t likely to continue.
More info about income and jobs:
Loan limit Requirements for a VA loan
There are loan limits but it only applies to those who currently have an active VA loan, or had a VA loan that was defaulted on and resulted in a foreclosure or a short sale.
Who is eligible for a VA loan?
- You’ve served 181 days of active service during peacetime.
- You’ve served 90 consecutive days of active service during wartime.
- You’ve served more than 6 years of service with the National Guard or Reserves or 90 days under Title 32 with at least 30 of those days being consecutive.
- You’re a widow – Your spouse was killed in service or from a service-related disability.
In addition to meeting the service requirements noted above, you’ll also need an acceptable discharge status to qualify for a VA loan.
- Honorable (HON)
- Under Honorable Conditions (UHC)
- General (GEN)
The VA home loan is a lifetime benefit: you can use the loan multiple times
If you’re not eligible, check out these other loans with no down payment.
Are Children of Veterans Eligible for VA Loans?
Military dependents cannot use their parents military service to qualify for a VA loan.
VA Loan Refinance Options
- Cash out refinance replaces a VA or another type of mortgage with a new VA loan. An option to take equity out of your home to pay for home improvements, consolidate debt, investments, pay for college or buy rental property.
- Streamline refinance, also called the Interest Rate Reduction Refinancing Loan (IRRRL), must currently have a VA loan to use this program. It’s perfect for lowering your monthly payment without having to provide income documents, or meeting VA appraisal requirements.
Are you ready to apply? Start the process by completing the form below.