Have you served the nation or the surviving spouse of one? If you are, you can opt for the VA Mortgage. We talk about how it works to finance your home.
Mortgages are generally divided into two types. You have conventional mortgages, which are less regulated, and lenders are in more control. On the other end, you have government-backed mortgages that are guaranteed by government agencies.
Apart from the FHA and USDA mortgage, there is another loan for the veterans. You have the VA mortgage loans.
Veteran Affairs mortgage is where active military personnel and surviving spouse of a veteran who died during service are eligible to avail these loans. One of the biggest attractions of VA loans is that the government vouches for borrowers.
This means the lender’s risk decreases, and they will be able to give the loan at favorable terms. These perks usually include having zero down payment and saving a lot of money.
In addition, the VA mortgage rate is often very less than the other interest rates of different mortgages. This reduces your monthly payments and makes mortgages more affordable.
As mortgage loans are different from one another, you would want to know the process of how VA mortgage operates. These are the conforming loans as they have to meet guidelines by Fannie Mae and Freddie Mac, government-sponsored organizations.
When it comes to the VA mortgage applications, these are accepted and rejected by the US Veterans affair Department. So, that is not something lenders can do.
This department is also the one that assigned VA mortgage lenders authorized to give loans.
VA loans are one the mortgages that offer immense flexibility. But it is not for everyone. Contrary to common beliefs, not all veterans are eligible to avail of the VA mortgage.
Here are some general criteria that a veteran needs to meet to take advantage of a VA mortgage.
Apart from the period of active service, you can still have your VA loan application if you are not a veteran. Sounds interesting, doesn’t it? You can take advantage of the VA mortgage if you are the spouse of a veteran who lost their life on duty or performing their service has led to a disability.
Now that you know about the individuals who can qualify for the VA mortgage, let’s move forward and see what you need to do for your loan approval.
Here are some general terms that lenders expect you, the borrower, to know when applying for a VA mortgage loan.
Credit Score
Normally, lenders want a healthy credit score of over 650 or preferably 700. But these requirements ease up with VA mortgages. You might even qualify for the loan with a credit score of anywhere around 550. Remember, every lender has their own rules.
Debt to Income Ratio
This usually answers the important question of the loan lenders, “Can the borrower repay the loan?” The Debt-to-Income (DTI) ratio illustrates the capabilities to manage and pay back debt.
There is no fixed DTI that VA mortgage lenders are looking for. But it is good to have a DTI of under 50%
Loan Limit
As we mentioned earlier, the VA mortgages follow the Fannie Mae and Freddie Mac guidelines. One of the most significant rules they impose is having a loan limit. As it is a conforming loan, you cannot apply for a loan exceeding a loan limit.
Currently, in 2023, the loan limit is $726,200. This can change with time.
Pro Tip
If you are looking for a larger loan, try the Jumbo loan, which is non-conforming.
Down Payments
There might be situations you don’t have to make the down payments at all. Having said that, it may require a good credit score and debt-to-income ratio.
Generally, if the lender asks you to make a down payment, it is lower than most mortgages.
Property Types
With all the flexibility and ease that you, as a veteran borrower, get with this loan, investing in property may not be one of them. The veteran mortgage can only be approved for your primary residence.
If you are looking to finance your vacation home or for investment purposes, VA loans might not be the right option to go for.
The Veteran Affairs mortgage has its set of advantages and downsides. Knowing about them will make it easier for you to decide whether to go for the VA loan or not.
Less Interest Rate
Since this loan is backed by the government, the VA mortgage rate is significantly lower than various other loans. This means your monthly mortgage will reduce, allowing you to save money.
Little to No Down Payment
A down payment is usually a massive upfront cost that homeowners have to deal with. But with the VA mortgage, you either have to pay very little down payment or escape it altogether.
No Private Mortgage Insurance
Usually, not paying a 20% down payment means you have to opt for private mortgage insurance (PMI). But when you go for a VA mortgage, where the lender usually requires a lower down payment, you don’t have to take the PMI.
You can save about 1% to 2% of your loan amount every year.
Limited Property Financing
With the VA Mortgage, you can only finance your primary home, in which you live in. That means if you are looking to finance your investment properties or vacation home, you may want to look for an alternate mortgage option.
Additional Expenses
As you save money, you also need to account for additional fees and costs. These expenses include the appraisal cost, inspection costs, and more. You need to account for these additional expenses when budgeting for a VA mortgage.
Slower Process
As it is backed by the government, lenders cannot solely approve or reject the loans. This can be a lengthy procedure, which can be time-consuming. So, there might be a delay in getting the verdict.
Understanding the purpose of what VA loan is and how it functions is essential. By now, you should have a clear understanding of it’s pros and cons and can easily make up your mind about it.
If you’re curious about the expected mortgage that you can use our Mortgage Calculator. We also provide a wide range of houses to buy, sell, or even rent.
For VA loan approval, credit score requirements are more flexible, typically around 550, and there's no fixed Debt-to-Income (DTI) requirement, but a DTI under 50% is ideal. Loan limits apply, with a 2023 limit of $726,200, and no or low down payments may be required.
Advantages include lower interest rates, little to no down payment, and no need for private mortgage insurance (PMI). Downsides include limited property financing (only primary residences), additional expenses (e.g., appraisal and inspection costs), and potentially slower loan approval due to government backing.
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