Are you or have you served in the military? Have you checked your eligibility for VA loan programs? If possible, consider taking advantage of this fantastic benefit!
VA loan programs let active duty military and veterans buy real estate with:
- $0 Down Payment
- No Monthly Mortgage Insurance
- Easy Qualification
- Minimal Closing Costs, and
- Relatively Low Interest Rates.
First, let’s review program qualifications, loan limits, types of VA loan programs, and finally, the VA Funding Fee.
VA Loan Program Qualifications
VA loan programs are currently available to all active duty and veterans who meet these qualifications:
- Must have active duty service after September 16, 1940.
- Not dishonorably discharged.
- Veterans with service only during peacetime periods and active duty military personnel must have had more than 180 days of active service.
- Veterans of enlisted service which began after September 7, 1980, or officers with service beginning after October 16, 1981, must in most cases have served at least two years.
- Gulf War veterans include members of the Reserves and the National Guard who were activated on or after August 2, 1990, served at least 90 days and were discharged honorably.
- Members of Reserves, including National Guard, who are not otherwise eligible and who have completed six years of service and have been honorably discharged, or have completed six years of service and are still serving, may be eligible. Reservists may pay slightly higher funding fees than active duty veterans.
Also, unmarried surviving spouses are eligible for this VA program.
Loan Limits
While the VA does not set loan limits, there are usually limits on the amount of liability the VA can assume. This will consequently affect how much a lender will lend to you. The loan limits are the amount a qualified Veteran with full entitlement may be able to borrow without making a down payment. Loan limits vary by county, since the value of a property depends in part on its location.
Effective January 1, 2020, there are NO loan limits for VA-insured loans. Nonetheless, your lender will determine your qualification based on your credit, assets, and income. Lenders can always set their own limits on loan amounts. Most importantly, check with your loan officer to determine your maximum loan amount.
What Income Qualifies for a VA Loan?
In addition to your base pay, you can also include the following as qualifying income. You can use the gross amounts, instead of the amount you receive after taxes:
- BAS (Basic Allowance Subsistence)
- BAH (Basic Allowance Housing)
- Uniform Allowance
- Family Separation
How Can a Seller Help?
If you are buying a home, the Seller can help a VA buyer qualify. The Seller can contribute a credit to cover all recurring non-recurring closing costs.
The Seller can also pay off a buyer’s debt, maximum 4% of the balance, to help them qualify.
Types of VA Loan Programs
There are four types of VA Loan Programs: one purchase loan, and three refinance loans:
- VA Purchase Loan – this is what you use to buy real estate.
- VA Streamline Refinance, or IRRRL – if you have an existing VA loan with a high interest rate, you can refinance into a new VA loan at the current interest rate. No appraisal is required. Read more about Refinance Costs. NOTE: You need to wait 120 days before refinancing an existing VA loan.
- VA Cash Out Refinance – up to 95% loan-to-value (LTV) ratio
- Regular Rate Interim Refinance – if you have an existing conventional loan, you can refinance into a VA loan at up to 100% of your home’s value.
Energy Efficient Mortgage (EEM)
If you would like to finance energy upgrades into your Purchase Loan or IRRRL, you can have an Energy Efficient Mortgage (EEM) in conjunction with your loan. This additional loan can pay for energy improvements, such as:
- solar heating and cooling systems
- caulking and weather stripping
- furnace efficiency modifications
- insulation
- storm doors and windows
- heat pumps
- vapor barriers
It should be noted that the increase in your mortgage payment can be offset by utility bill savings. You can also read about other ways to finance green upgrades.
VA Funding Fee
Instead of a mortgage insurance premium, borrowers must pay a one-time funding fee to help cover any foreclosure losses. The funding fee is based on a percentage of the principal amount of the loan. The percentage also depends on the type of loan and the down payment amount.
Borrowers usually finance the funding fee into the loan, or they may pay it in cash at close of escrow. This Funding Fee Table shows rates effective April 7, 2023. For example, a first-time VA borrower with $0 down pays a 2.15% funding fee:
Purchase Price: $550,000 x 2.15% funding fee = $11,285
So, if the borrower chooses to finance the funding fee, the total loan amount will be $561,825.
The following persons are exempt from paying the funding fee:
- Veterans receiving VA compensation for service-connected disabilities.
- Veterans who would be entitled to receive compensation for service-connected disabilities if they did not receive retirement pay.
- Surviving spouses of veterans who died in service or from service-connected disabilities.
- Effective January 1, 2020: Servicemembers or Active Duty who are Purple Heart recipients.
NOTE: Veterans with a 100% disability rating are eligible for a generous property tax exemption. If you think you might qualify for 100% disability, please read my article about military property tax exemption for more information.
Getting Started
The first step is to find a loan officer to determine your loan program eligibility. I can help you find someone who is knowledgeable about VA loan programs, and who can explain the loan approval and funding process. In addition, you will need a Certificate of Eligibility to begin the approval process – many lenders can order this for you at no charge.
If, on the other hand, you don’t qualify for a VA loan, you can check your eligibility for a conventional home loan or an FHA-insured loan.
You can also read about Finding a Lender, Getting Pre-Approved for a Mortgage, and estimating How Much You Can Qualify For.
UPDATE: Effective 2020, there is a no-cost online home buyer workshop. This new tutorial is a comprehensive homeownership education course. CreditSmart® Homebuyer U offers six modules to promote education, homebuyer preparedness, and financial management.
Finally, you can also learn about how to use the VA program to become a real estate investor.
Any questions about VA loan programs? Call/text me at (760) 637-7231 or send me a message.
I couldn’t have written this article without the expert advice of Nick Richardson:
Nick Richardson is a mortgage banker with EZ Fundings in San Diego, California, NMLS #966361. He can help you finance or refinance properties located in California. Nick can answer all of your questions about mortgage programs, with no hassle, no obligation. Contact him at 760-402-6962 or e-mail nick@ezfundings.com.
