The VA is an excellent source of financing for military members and veterans looking to purchase homes, but there are some restrictions associated with their program.
VA loans are not available for the purchase of vacation or investment property. Furthermore, any home you buy with proceeds of a VA loan must become your primary residence.
Certificate of Eligibility
A Certificate of Eligibility is the first step in qualifying for a VA Loan. This document proves that you have met certain eligibility requirements, such as the service time required.
It is easy to apply for a Certificate Of Eligibility (COE), whether you do it online or via mail. The process can take anywhere from four to six weeks, depending on the speed at which your application is submitted.
The Certificate of Eligibility contains your name, Social Security Number, branch of service, and any loans that have been charged against your entitlement. In addition, there will be a two-digit entitlement code identifying when and why you may qualify for a VA loan.
The COE tells lenders if you have used VA benefits in the past and if a funding charge applies to your new loan. It also lists Minimum Property Requirements (MPRs), which help ensure that your new home meets safety, structural soundness, and sanitary criteria.
Minimum Property Requirements (MPRs)
The VA has set forth stringent minimum property requirements (MPRs) that your home must fulfill before being considered eligible for a VA loan. These standards ensure your house meets basic safety, sanitation and structural criteria to make it suitable for residential use.
If the home does not meet Minimum Property Requirements during an appraisal, VA could request you to fix it prior to being approved for mortgage loan approval. You may be required to sign a repair contract, but you can opt out if needed.
Residential MPRs include space and accessibility requirements. Your home must offer sufficient room for living, sleeping, cooking and eating as well as having functional sanitary bathrooms that meet these standards.
If your home is located in an area that has a high risk of flooding, you must purchase flood insurance before the VA will approve your loan. This requirement does not apply if it falls within one of FEMA zones B, C or X.
Credit Score
Are you a Veteran or Active Service member considering VA Loans? VA loans are government-backed mortgages which enable home buyers to purchase or refinance with lower down payments and interest rates than conventional loans.
VA guarantees these loans in part. You cannot get one without first having established credit.
Before granting loans, private lenders will also require a minimum credit score between 580 and 680.
Mortgage lenders often use your Debt-to-Income ratio (DTI) to determine whether you can afford to make your monthly payments. This percentage shows how much debt you have (including mortgage payments) in relation to your income.
Down Payment
VA borrowers do not typically make down payments on homes. However, it may be prudent to pay a small amount as part of the price of the home, for example, if you are buying in a seller`s marketplace or if you want to increase your chances of getting financed.
You can qualify for lower mortgage payments, better interest rates and refinancing options by making a down payment.
The VA funding fee is usually lower for home buyers who make down payments than for non-VA borrowers. This fee supports the VA loan program, and encourages lenders and banks to offer loans at lower interest rates with easier qualification guidelines.
VA mortgage borrowers also enjoy other advantages offered by these loans, including no mortgage insurance (MI). MI can cost hundreds of dollars per month. VA loans do not include it.