The Essential Guide to VA Home Loans

The Department of Veterans Affairs (VA) home loans program is one of the most robust government-backed loan programs in the country, creating opportunities for veterans to purchase their own homes. According to VA Home Loans Lender Statistics, over one million (1,441,745!) loans were issued in 2021 alone. The VA not only provides home loans for first-time and other homebuyers but also offers loan options for cash-out refinancing and home renovation, too. VA loans are not only available for discharged members of the service—many active duty and reserve members can also apply. 

With the added step of VA eligibility on top of the usual mortgage qualification requirements, navigating the VA Home Loan application process can be intimidating for some. Here, we’ve outlined the basics of applying as well as the benefits of VA loans over traditional loans. Keep reading to learn how VA loans can help you achieve your homeownership goals!

Am I eligible for a VA loan?

The US Department of Veterans Affairs grants eligibility to members of the US military who have served a minimum amount of time in active duty or reserve. Your eligibility will depend on where, when, and how long you served, and in-depth requirements are detailed here. Generally, you are eligible if your service meets one of the following criteria: two years on Active Duty, six years on Reserve/National guard, ninety days of Wartime Duty, or 181 days of Peacetime Duty.

If you determine that you are eligible, the next step is to obtain a Certificate of Eligibility, or COE. For most service members, you’ll need a copy of a statement of service or your discharge papers. Specific documents needed for each branch of the military are outlined on the VA page, How to request a VA home loan Certificate of Eligibility (COE). This same page also connects you to information on the methods available to you to apply for a COE once you’ve gathered the correct document(s). 

Many will apply for a COE online through the VA’s eBenefits portal, but you can also apply by mail using the VA Form 26-1880. However, the easiest way is to apply directly through your mortgage lender, who can do so for you using the VA’s Web LGY application system. Reach out to your local lender to find out how they can assist you through the process and fast-track your loan!

Lastly, you can check out this useful, step-by-step guide to getting your COE, published by Military.com, for more information and helpful tips. 

Being eligible for a VA loan doesn’t guarantee you will be qualified for a loan. Your lender will still require you to meet some credit and debt-to-income ratio requirements. If you find that you do not qualify for a loan when you first apply, keep in mind there are other housing assistance options available, such as programs for veterans with disabilities.

What are the benefits of a VA mortgage loan?

VA loans are specifically designed to make home purchases more accessible to those who’ve served in our military, and many of the usual obstacles to getting a home loan have been removed or reduced to ensure this. Compared to conventional mortgages, VA loans are not only more accessible to buyers, but they can also offer you significant savings. Here are the top benefits of VA mortgages over other mortgage products.

1. Low-Interest Rates. Interest rates for VA loans tend to be lower than both conventional and FHA (Federal Housing Association) loans. While the difference may only be .3%–.5%, considering that even a .25% difference amounts to about $26 a month on a $200,000 loan, over the life of the loan you could save $10,000-$20,000 or more, depending on your loan amount and interest rate.
2. No Down Payment. Both conventional and FHA loans require some form of down payment. These upfront costs can create insurmountable hurdles for many who are looking to buy a home. VA loans, however, are one of the few loan products that require no down payment.
3. No PMI. Conventional home loans require buyers to pay for private mortgage insurance (PMI) if they have less than 20% down (in other words, borrowing more than 80% of the value of the home), costing buyers about $30 to $70 dollars each month for every $100,000 borrowed. Instead of PMI, VA loans require a funding fee, which is a one-time fee added to the loan, dependent on the size of your down payment. For instance, a borrower who puts down a 10% down payment will pay a fee that is 1.4% of their loan cost, while someone putting down less than 5% will pay 2.3%. Note: Veterans who receive disability, their spouses, and veterans who received a Purple Heart are exempt from this fee. 
4. More Flexible Debt-to-Income Requirements. Unlike other types of home loan, there are no official debt-to-income (DTI) ratio requirements. If a buyer’s debt-to-income ratio is more than 41%, lenders can look at other factors, including things like “residual income” (income left after the mortgage and expenses are paid) to help determine whether or not a loan is truly affordable.

Is it harder to purchase a house with a VA loan?

One of the biggest concerns for homebuyers considering a VA loan is how it will affect their chance of getting the home of their dreams—especially in our current tight housing market where buyers may need to act quickly or compete with multiple offers.  

The VA wants to see its veterans in livable, quality homes with sufficient living space, and houses that do not meet Minimum Property Requirements (MPRs) will either be granted an extension for bringing the home into compliance, or will not be approved for a loan. Fixer-uppers are generally not going to meet their requirements, and it’s best to focus your home search on move-in-ready properties that follow the VA’s Minimum Property Requirements Guidelines, best summed up by the 3 S’s: “safe, structurally sound, and sanitary.” Additionally, certain housing communities, like some condo complexes, might not be eligible. If you are worried about going through the process only to be denied at the final stages, let your realtor know that you will be using a VA loan, and they will help you narrow your search to appropriate properties. For more details on MPRs, check out this useful run-down by Benefits.com.

Although the appraisal process for the VA can intimidate some sellers, keep in mind that many home loans require inspections and appraisals. Other government-backed loans like FHA loans also have similar rules for property quality—designed to protect buyers, rather than limit their options. By being aware of the requirements in advance, you can avoid pitfalls. Consider that the money you save on lower interest rates may even qualify you to make a more competitive offer!

How do I apply for a VA loan?

Applying for a VA loan starts with getting your COE (see above). While you can do this on your own, if you have a preferred local lender that you would like to work with, they can help you at this step. Once you’ve obtained your COE, the procedure for getting the actual loan is very similar to other types of home loans.

Native American veterans and veterans who are the spouses of Native Americans may qualify for a Native American Direct Loan, working directly with the Department of Veterans Affairs to obtain your loan. Otherwise, you’ll work with a private lender to apply for a VA-backed purchase loan. As they will be an essential part of the home-buying process until you finalize the sale at closing, it’s important to find a quality lender who you can trust and depend on.

After you’ve obtained your COE and before you begin shopping for homes, you’ll work with your lender to get pre-qualified. During pre-qualification, lenders will look at your income, expenses, and credit to determine the loan amount that fits your budget. While not a requirement, pre-qualification will not only speed up the process when you are ready to purchase your home, but sellers will also take your offer more seriously if you have a pre-qualification in hand. Once you have that pre-qualification, it’s just a matter of finding the home that’s right for you and putting in an offer. Once an offer is accepted, your lender will continue working closely with you on the final loan approval and closing!

If you already own your home, there are VA home loan products for existing homeowners as well! These include loans for home renovation as well as cash-out refinance loans for those looking to take out cash from their home equity or refinance a non-VA loan into a VA loan with more favorable terms. And remember, if you have any questions about the mortgage or refinance process, you can visit our Mortgage FAQs page, or reach out to one of our professional mortgage lenders, who are happy to help!

Ready to apply?

For many people, buying a home is the biggest financial decision they will make. Finding the right mortgage lender who can help you through the process can make all the difference. At Town and Country Bank and Peoples Prosperity Bank, our team of local lenders is here to help qualified veterans achieve their dreams of homeownership and take advantage of special rates and lending opportunities through the VA. 

From low-down-payment home loans to VA Home Renovation Loans, we can guide you in choosing the right home loan for you. Contact us, apply online, or stop into one of our branches in Springfield, Jacksonville, Lincoln, Decatur, Bloomington, Edwardsville, or Quincy to see how we can help get you into a new home!