If you are an active-duty or retired military service member looking to purchase a home, consider a VA home loan. The VA (i.e., Department of Veterans Affairs) assists military service members, veterans, and eligible surviving spouses with the process of affording and purchasing a home. You can apply for a VA home loan through a private lender (e.g., bank, credit union, mortgage company, etc.) while the VA guarantees a portion of the home loan. This enables the lender to provide you with favorable terms, including no-down-payment mortgage options.

A VA home loan is a mortgage guaranteed by the United States Department of Veterans Affairs. It is a type of home loan exclusively available to mortgage applicants with military service experience.

A VA home loan works much like standard home loan programs available to civilians and others. The first step entails completing a loan application, which includes providing sufficient documentation reflecting the fact that you can afford the monthly payment toward paying down the loan. Once your VA home loan application is submitted, your credit history will be reviewed and income sources verified. Despite sharing similarities with traditional FHA home loans, there are notable differences associated with a VA home loan, including:

• Verification of your military service history – As mentioned, the VA home loan is only available to borrowers with a military service record. In addition, a VA home loan is only available to service members who have served a sufficient amount of time to meet eligibility requirements.
• Must pay a VA funding fee –  If you take out a VA home loan, be prepared to pay a VA funding fee cost. This fee typically costs between 0.5 percent and 3.6 percent of the home purchase price. This funding fee is charged to help offset the cost of the VA loan program to taxpayers. 
• Only one percent in closing costs – A big benefit to taking out a VA home loan is lenders are restricted to only charging one percent of your loan for closing costs. This will likely save you a decent amount of money at closing.
• No mortgage insurance required – The vast majority of no-down-payment home loan programs require the buyer to purchase mortgage insurance. In contrast, the VA does not require mortgage insurance on any of its home loan options.

One major benefit of a VA home loan is that you do not typically need to make a down payment to qualify for a mortgage. This makes it much easier to afford a home and allows you to preserve funds that could be used for moving expenses and any home renovation costs.

The standard VA loan limit in 2022 is $647,200 for most U.S. counties, according to Veterans United. If you are looking to purchase a home in a high-cost county, the general limit for a VA home loan is around $970,800 for a single-family home.

If you are determined to be eligible for a VA home loan, there are additional requirements that you will need to meet:

• Specific debt-to-income ratio requirement – The VA recommends a maximum 41 percent debt-to-income ratio.
• Federal debt default tracking – VA-approved mortgage lenders utilize the Credit Alert Interactive Reporting System (CAIVRS) to check and determine if an applicant has defaulted on any federal debt, such as past VA loans or student loans.
• Employment history – Mortgage lenders generally prefer you have a steady, two-year job history but may make exceptions if you are a recently discharged veteran.
• Credit score minimum – Many mortgage lenders have a credit score minimum set at 620.
• Occupancy requirement – The VA requires you to live in the home you intend to finance with a VA loan, which lender terms is known as a “primary residence.” You can’t use a VA loan to buy a second home or investment property.
• Appraisal requirement – This is a key distinction between VA home loans and other types of loans. Only a VA-approved appraiser is authorized to complete a VA appraisal. They typically cost between $500 and $1,200, which is more than the $300 to $400 usually spent to secure the services of a conventional appraisal.

From a process perspective, purchasing a home with a VA loan is not much different from purchasing a home with a traditional FHA loan. Here is an overview of the purchase process: 

1. Secure pre-qualification for the VA home loan
2. Secure pre-approval of the VA home loan
3. Once approved, submit an offer on the home you want to purchase
4. If your offer is accepted, complete the VA Appraisal and Underwriting prerequisites 
5. Finalize purchase of your new home at closing

No, you generally cannot use a VA home loan to purchase a second home. Though, it is important to note that the term “second home” refers to a vacation home or rental property.

However, a VA home loan can be used to purchase a second primary residence.

Yes, the VA Interest Rate Reduction Refinance Loan (IRRRL) can be utilized to refinance an existing VA loan to lower the interest rate.

If you are a military service member, veteran, or surviving spouse of a veteran, contact Rodrigo Ballon and CrossCountry Mortgage to discuss your home loan options, including eligibility for a VA loan. Rodrigo Ballon has been in the mortgage lending industry for close to two decades and has helped more than 4,700 families achieve their home financing objectives.