The Hard Truth: Questions And Answers About VA Loans

Common Questions about VA Loans :

VA loans are a pivotal support mechanism for veterans and active military members embarking on the home-buying journey. Designed to facilitate homeownership within this dedicated community, VA loans offer distinct advantages over conventional loan options. These benefits, including no required down payment or private mortgage insurance, are tailored to acknowledge the sacrifices made by military service members and their families. 

By simplifying the path to purchasing a home, VA loans embody a gesture of gratitude from the nation, ensuring that those who have served have a smoother transition to civilian homeownership.

Essential FAQs about VA Loans

What is a VA Loan?

A VA loan is a mortgage loan in the United States guaranteed by the Department of Veterans Affairs (VA). It is available to most American veterans, active-duty service members and select surviving spouses. The VA loan program aims to facilitate home ownership by offering loans with favorable terms, such as no down payment and no private mortgage insurance. The essence of the VA loan is its guarantee, which minimizes the risk for lenders, thereby providing better loan terms to the borrowers.

Who is Eligible for a VA Loan?

Eligibility for a VA loan is primarily determined by service duration, duty status, and character of service. Veterans, active-duty service members, reservists/National Guard members, and some surviving spouses are eligible for VA loan benefits. The cornerstone of these benefits is obtaining a Certificate of Eligibility (COE), proving to lenders that the applicant meets the necessary military service requirements. This certificate can be obtained online, through a lender participating in the VA Home Loan program, or by mail.

Can I Buy a Second Home with a VA Loan?

While VA loans are designed to help veterans and active military members buy homes, using them to purchase second homes has restrictions. VA loans cannot be used to buy vacation homes or investment properties. However, it is possible under certain conditions to buy another home with a VA loan if the first home was paid off or if there is sufficient remaining entitlement. This flexibility supports veterans with genuine needs to relocate or upgrade their living situations due to changing family or professional circumstances.

Can I Build a House with a VA Loan?

VA loans can indeed be used to construct a new home, although the process is more complex than purchasing an existing property. Borrowers typically need to secure a short-term construction loan from a bank or a builder and refinance into a VA loan upon home completion. This pathway allows veterans to build their dream homes while still leveraging the benefits of the VA loan program.

What Are the Benefits of a VA Loan?

The VA loan program offers several unparalleled benefits to eligible borrowers, including no down payment requirements, no private mortgage insurance, competitive interest rates, and the VA funding fee, which can be financed into the loan. These benefits are designed to make homeownership more affordable and accessible for those who have served. Notably, for veterans with service-connected disabilities, the funding fee may be waived, further reducing the cost of buying a home.

What Types of Properties Can I Purchase?

With a VA loan, borrowers can purchase various property types, including single-family homes, condominiums, multi-unit properties, and even new constructions. However, all properties must meet the VA’s Minimum Property Requirements (MPRs) to ensure they are safe, sanitary, and structurally sound. This requirement ensures that veterans and their families have a quality living environment.

What Are VA Loan Limits?

VA loan limits were established to guide the maximum amount veterans could borrow without needing a down payment. As of 2020, the Blue Water Navy Vietnam Veterans Act removed loan limits for veterans with full VA loan entitlement. However, loan limits still apply for those with diminished entitlement, perhaps because part of their entitlement is tied up in another VA loan or they have had a VA loan foreclosure. These limits vary by county and are aligned with the conforming loan limits set by the Federal Housing Finance Agency (FHFA). Borrowers exceeding these limits may need to make a down payment.

Can I Refinance My VA Loan?

Veterans can refinance their VA loan using one of two primary options: the Interest Rate Reduction Refinance Loan (IRRRL) and the VA Cash-Out Refinance. The IRRRL, also known as a VA Streamline Refinance, allows veterans to refinance an existing VA loan to a lower interest rate with less paperwork and no need for an appraisal. The VA Cash-Out Refinance, on the other hand, enables veterans to refinance a non-VA or VA loan and take cash out from their home’s equity. This option requires a new appraisal and underwriting process.

How Does the VA Loan Process Work?

The VA loan process involves several key steps, starting with obtaining a Certificate of Eligibility (COE) to prove your eligibility for the VA loan benefit. Next, you’ll find a VA-approved lender and get pre-approved for a loan. Once you’ve found a property, you’ll make an offer and go under contract. Your lender will then order a VA appraisal to assess the property’s value and condition. Following a successful assessment and underwriting review, you’ll move to closing, signing the final paperwork, and taking ownership of your new home. The process emphasizes the property’s appraisal and underwriting to ensure the loan meets VA guidelines and the property is a sound investment.

What Are the Common Pitfalls or Limitations?

Common pitfalls of VA loans include:

• Navigating the VA funding fee.
• Adhering to VA loan limits for those with diminished entitlement.
• Ensuring the property meets the VA’s Minimum Property Requirements (MPRs).

The VA funding fee varies based on the borrower’s circumstances and can be financed into the loan, but borrowers should account for it in their overall cost assessment. Properties not meeting MPRs may need repairs before loan approval, which can be a negotiation point between the buyer and seller.

Can I Use a VA Loan More Than Once?

Absolutely. Veterans can use their VA loan benefit multiple times, thanks to the concept of “restoration of entitlement.” After paying off a VA loan, veterans can apply to have their entitlement restored to purchase another home with a VA loan. In cases where veterans want to retain their current home and buy another, they may use their remaining second-tier entitlement, subject to certain conditions and possible down payment requirements depending on the loan amount and available entitlement.

How Does My Credit Score Affect VA Loan Eligibility?

While the VA does not set a minimum credit score requirement for eligibility, VA lenders typically do. Most lenders look for a credit score of 620 or higher, but this can vary by lender. A higher credit score can help secure better interest rates and terms. If a veteran’s credit score is below a lender’s minimum requirement, it’s often recommended to improve the credit score before applying for a VA loan. Strategies include:

• Paying down existing debt.
• Making all payments on time.
• Correcting any errors on the credit report.

Can I purchase a short sale or foreclosed property with a VA Loan?

Yes, you can use VA Loan benefits to purchase a foreclosure or short sale. However, properties in disrepair or those that have been vacant may face challenges meeting the VA’s property requirements. It’s important to ensure that any foreclosed property you consider is likely to pass the VA appraisal process.

Can I borrow more than my home is worth for renovations or upgrades?

VA Loans are designed to cover the purchase price or the appraised value of the home, whichever is less. If you wish to make renovations or upgrades, you generally cannot borrow more than the home’s appraised value. The exception is through the Energy Efficient Mortgage (EEM) program, which allows for up to $6,000 in energy efficiency improvements.

Should I be concerned about the VA appraisal?

The VA appraisal is crucial for ensuring the home you purchase is move-in ready and meets the VA’s Minimum Property Requirements (MPRs). Any issues identified must be resolved before the loan can close. It’s also wise to be cautious with unique properties that might not have comparable sales, as this can complicate the appraisal process.

Is a home inspection required for a VA Loan?

While not explicitly required by the VA, getting a home inspection is highly recommended. It provides a detailed look at the condition of one of the largest investments you’ll make, potentially saving you from costly surprises in the future.

How does the VA Energy Efficient Mortgage work?

The VA EEM allows borrowers to finance up to $6,000 for energy efficiency improvements as part of a home purchase or refinance. This program is designed for specific improvements that will lower utility costs and can’t be used for non-permanent additions like window AC units.

What income types are considered for a VA Loan?

Lenders may count various income types beyond salaries and wages, including Basic Allowance for Housing, Disability Pay, Retirement Income, and other military allowances, to qualify for a VA Loan.

What are the pros and cons of Joint VA Loans?

Joint VA Loans can offer easier qualification with multiple borrowers and increased buying power. However, they require at least one borrower to be VA-eligible and might necessitate a down payment from non-military borrowers. These loans can also tie up entitlement, affecting the ability to reuse VA benefits.

Can I use a VA Loan for adaptive housing needs?

Yes, the VA provides Specially Adapted Housing (SAH) and Special Housing Adaptation (SHA) grants for veterans with certain permanent and total service-connected disabilities. These grants can fund necessary home modifications to meet specific needs.

How does bankruptcy or foreclosure affect my eligibility for a VA Loan?

Veterans may be able to secure a new VA Loan two years after a foreclosure or short sale. However, it’s important to consider how much entitlement is left and whether a down payment is necessary for the new loan amount.

What should I do if my employment changes during the loan process?

Maintain consistent employment throughout the loan process. If a change is necessary, discuss it with your loan officer, as underwriters may view income from a new job as unreliable.

What happens if there are delays in providing requested documentation?

Promptly providing all requested documentation is crucial. Delays can prevent the loan from closing on time, although they may not directly lead to denial.

What if the loan is denied?

If your loan is denied, consult with your loan officer for the specific reason. Elevation Mortgage provides credit consulting to help veterans improve their credit and potentially qualify in the future.

The Bottom Line

The VA loan program is a testament to the United States’ commitment to its military service members, offering a path to homeownership that acknowledges their sacrifices and service. The VA loan empowers veterans and active military members to achieve their dreams of owning a home through its unique benefits, including no down payment, no private mortgage insurance, and flexible refinancing options. While navigating the VA loan process requires understanding eligibility, loan limits, and property requirements, its advantages make it a valuable tool for those who have served. As with any significant financial decision, prospective borrowers should consult with VA-approved lenders and utilize the Department of Veterans Affairs resources to fully leverage this benefit. In doing so, veterans can successfully navigate the complexities of the VA loan process, avoid common pitfalls, and secure a place they can call home.