VA LOAN

A VA loan is a type of government loan, backed by the U.S. Department of Veterans Affairs (VA). The VA offers specific guarantees to private lenders that handle VA loans. Because of these guarantees, lenders offer loans that typically feature no down payment to veterans, and they may have less stringent requirements than other loans.

Who Qualifies For A VA Loan?

For those who are eligible, VA loans are attractive because they don’t usually require a down payment. They also have lower interest rates than many other types of mortgage loans you can get for similar terms. They don’t have monthly mortgage insurance.

Although lenders set their own requirements for certain aspects of qualification, VA loans have more lenient credit requirements than many other mortgage programs. That means qualifying for one should be easier, even if you have a poor credit history or small down payment.

Not all who have served in the Armed Forces qualify for a VA loan. You must meet at least one of the following criteria to qualify:

• 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 the spouse of a service member who lost their life in the line of duty or as the result of a service-connected disability. You generally cannot have remarried, although there are exceptions, as well as other requirements for a spouse getting a VA loan.

Wartime or peacetime definitions depend on when you served. For more information, see the VA’s eligibility guidelines.

Documents You’ll Need

Depending on your status, there are several different forms you’ll need to include with your mortgage application in order to qualify.

Veterans

Veterans need to submit DD Form 214. DD Form 214 is a certificate that verifies your military discharge. 

Active-Duty Service Members

You’ll need a statement of service for VA loan applications signed by your personnel officer, or an adjunct or unit commander if you’re an active-duty service member. The statement of service must include your full legal name, Social Security number and birthdate.

It must document the date you entered the service, information on any breaks or discharges you took from service and the name of the commander providing the information. Ask your superior for a statement of service before you apply for your COE.

Current Or Former Activated National Guard Member

Current National Guard members also need a copy of their Form DD 214.

If you have at least 90 days of active service, you’ll need one of the following:

• Your DD214 that shows 32 USC sections 316, 502, 503, 504, or 505 activation

• An annual point statement

• Your DD220 with corresponding orders

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Current Member Of The National Guard Or Reserve Who Hasn’t Been Activated

You’ll need a statement of service signed by your commanding officer. These requirements have the same as they are for active-duty service members.

Discharged Member Of The National Guard Who Wasn’t Activated

Discharged members of the National Guard need to have NGB Form 22, Report of Separation and Record of Service for each period of National Guard service. You must also have NGB Form 23, Retirement Points Accounting and proof of character of service.

National Guard units belong to individual states, so there is no central record archive. Contact the National Guard Adjutant General’s Office in the state where you served and request your NGB Form 22 and 23 to get your COE.

Discharged Member Of The Selected Reserve Who Wasn’t Activated

You must have a copy of your annual Retirement Points Statement if you’re a discharged member of the Selected Reserve. You also need proof of honorable service and discharge.

Surviving Spouses

Surviving spouses who do not get dependency benefits can get a COE if they have their spouse’s DD Form 214, their marriage license and their spouse’s death certificate. You also need to print and complete VA form 21P-534-ARE, which is available on the VA benefits website.

Surviving spouses who receive dependency benefits need to print and complete VA form 26-1817. You can download the form for free from the VA benefits website.

Once you’ve got your evidence, you have a few options to apply for your COE.

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Other VA Loan Eligibility Requirements

Once you’ve verified that you meet the service requirements for a VA loan, you need your income, assets and credit to check out, as well as the property you’re buying. Requirements may also vary for any loans your lender considers a VA jumbo loan.

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Property Type

VA loans can also be used on condos and manufactured homes, but not all VA lenders will finance loans for these property types. In order to be in compliance with VA loan occupancy requirements, the property you buy must be your primary residence within 60 days of purchase. You can’t use a VA loan for a vacation or investment property, but you can use it to buy a one-to-four family home if the eligible member uses it as a primary residence.

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Credit Score

The VA doesn’t require a specific minimum credit score for VA loans, so the credit requirement varies by lender. 

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Income

Your lender will evaluate your debt-to-income ratio (DTI) when considering your ability to pay back the loan. Your DTI represents how much of your monthly income goes toward paying back debt. The VA does not set limits on your DTI, although your lender might. 

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VA Loan Limit

The VA doesn’t limit how much you can borrow, except in the case of impacted entitlement. But when loan limits do apply to a VA loan, they're usually based on conventional loan limits, which as of 2022 sit at a minimum of $647,200 for contiguous U.S. states. Additionally, lenders often use the conventional loan limits as the lower bounds for VA jumbo loans. Certain high-cost areas have higher limits. If you need a loan higher than that amount, you may be able to look into a VA jumbo loan, which doesn’t require a down payment and may offer a lower rate than regular jumbo loans.

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Down Payment And Assets

VA loans are one of the few loan options that don’t require a down payment. Your lender may have specific requirements for a no-down-payment VA loan. For example, they may require that you have a higher credit score if you’re putting down less than 10%. The requirement to purchase a home with a VA loan with no down payment is still a median of 580 for any loan that falls within conventional limits. It’s important to keep in mind that “no down payment” doesn’t mean “zero cost.” In addition to VA loan closing costs, there are some other fees to be prepared for, even if you’re putting 0% down. 

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Funding Fee

Most people who get a VA loan are required to pay a funding fee, which covers the cost to taxpayers. The VA funding fee normally ranges from 1.4% – 3.6% of your loan amount. If you previously had a VA loan and you’re doing a VA Streamline, the funding fee is 0.5%. The cost of the fee is determined by your type of service, the size of your down payment or amount of equity, whether it’s the first-time you’re getting a VA loan and whether you’re buying or refinancing the property. Surviving spouses, veterans who receive disability and Purple Heart recipients serving in an active-duty capacity are exempted from funding fees.

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Reserve Funds

Most loans require you to have additional money in the bank that you’re not using for upfront costs. This ensures that you’ll be able to make payments once your loan closes. The amount of leftover funds you’ll need is determined by the cost of your mortgage payment, including principal, interest, taxes and insurance. Although it’s not always required, it’s a good idea to show reserves equal to 2 months’ worth of mortgage payments.