What is a VA Mortgage?
The Department of Veterans Affairs (VA) loan, also known as a VA mortgage, is a home loan program for eligible veterans, active military members, and reservists. The VA loans are guaranteed by the department and have special considerations when it comes to qualifying, financing, and refinancing.
The benefits of a VA mortgage include no down payment requirement, no minimum credit score requirements, and favourable interest rates. If you are a qualified member of the armed forces or a veteran, you may be eligible for one of these special home loans.
While there are several housing loan programs out there meant to help you buy a house – the VA Loan is unique in that it is the only one that places no restrictions on you regarding where you live or what type of property you purchase.
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Eligibility for VA Mortgage
In order to be eligible for a VA mortgage, you must be one of the following:
- A current member of the military (any branch) – including activated reservists and National Guard members
- An honorably discharged veteran
- A surviving spouse of a veteran (as long as you obtained the property before your spouse died)
- A surviving spouse of a member of the military (as long as you obtained the property before he or she died)
- A dependent child under certain circumstances.
In order to qualify for a VA loan, you must have a valid Certificate of Eligibility (COE). This is issued by the VA after you submit a valid application. You can apply for a VA loan at any time, but you do not have to wait until you’re ready to buy a house to apply.
How to Qualify for a VA Mortgage
VA mortgage documentation requires that you have sufficient proof of income, creditworthiness and a valid Certificate of Eligibility (COE). There are no minimum credit score requirements.
There are three steps to obtaining a VA mortgage.
- Apply for the loan: You can start the application process by calling a lender or visiting their website. You will be given information about the loan process and an outline of the documentation you will need to provide to qualify for a VA mortgage.
- Obtain documentation: You will need to provide proof of income, a valid credit report, and pay stubs or a letter from your employer detailing your income. If you have ever been denied credit, you will have to have a credit report showing no recent past-due accounts. You may be required to provide a down payment.
- Get your COE: Once you have finished providing all the documentation and have shown sufficient proof of income and creditworthiness, you will be given a Certificate of Eligibility (COE), which is required to close the loan.
Pros of a VA Mortgage
- No down payment requirement: The biggest advantage is that you do not have to make a down payment.
- No minimum credit score requirements: Unlike FHA, USDA, or conventional loans, there are no minimum credit score requirements for VA loans.
- Low mortgage insurance: Most VA borrowers pay for no mortgage insurance (PMI).
- Flexibility: Since the VA gives you the ability to live anywhere you want, you can buy a home without having to worry about what the neighbors think or what happens if you miss a monthly payment.
- Reduced interest rate: Private lenders sell VA mortgages to investors, and they charge a lower interest rate than they would for other home loans.
- Closing costs paid by a lender: The VA will pay the lender to buy down the interest rate and cover closing costs.
- Time to close the deal: VA loans are processed quickly, and the closing should be done within 30 days.
- Possible reimbursement: If you purchased the home before July 29, 2019, you might be eligible to have your closing costs reimbursed.
Cons of a VA Mortgage
- No cash-out refinancing: You can refinance only if you are paying off the VA loan.
- Credit issues: If you have a history of credit issues, a VA loan will not help you.
- Inability to repay: One of the biggest cons is the possibility of having to pay the loan back in full.
- The Department of Veterans Affairs has the power to foreclose on your home and repossess all assets if you default on a VA loan. If you have a poor payment history, you will have problems getting a mortgage.
How to Get a VA Mortgage?
Once you have obtained a Certificate of Eligibility (COE), you can proceed with the steps to getting a VA loan:
- Lender selection: First, you must select a lender.
- Prequalify or apply for a VA loan: Next, you will either prequalify or apply for a VA loan.
- Loan approval: Once the lender reviews your application and verifies your income and creditworthiness, they will approve your loan.
- Closing the loan: The closing should take place within 30 days. You should receive a note and a payment schedule.
Final Words: Is a VA Loan Right for You?
If you are a member of the military, a veteran, or a surviving spouse, there are many benefits associated with a VA mortgage.
The minimum credit score requirements and down payment requirements make it a more attractive option for some borrowers. If you are a member of the military, a veteran, or a surviving spouse, you may qualify for a VA mortgage.
VA loans require no down payment and allow you to live anywhere. A credit score of 620 will get you the best interest rate. You cannot refinance a VA mortgage to get cash out.
You will have to be prepared to make a large payment when the loan term ends. If you are in the market to buy a house and you have a VA loan, you might be wondering if VA loans are right for you.
The answer is almost certainly yes. And the only decision left to make is which lender you want to work with to get your loan.