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Video — A Quick Overview Of VA Loans

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As the video says, the name is misleading - theyre not loans FROM the VA. The VA - short for US Department of Veterans Affairs - is the Federal military veteran benefit system. The VA administers benefits and services for Servicemembers, Veterans their dependents and survivors. Programs related to home loans are one of their key services. The VA is not a bank; they do not provide home loans themselves. But they do guarantee a portion of home loans provided to veterans and other eligible people by banks and mortgage companies. These guarantees enable lenders to provide more favorable terms. They are are commonly called VA Loans. They cover buying, building, repairing, retaining and adapting homes for personal occupancy by eligible Veterans and survivors.

Rates, eligibility rules, and more for VA loans

Once you've made sure you meet the service requirements for a VA loan, your income, assets, and credit, as well as the property you're buying, need to all be in order. Any loan your lender thinks of as a VA jumbo loan may also have different requirements.

Type of Property

VA loans can also be used to buy condos and mobile homes, but not all VA lenders offer loans for these types of properties. You can get a VA loan for a condo from some lenders, but not for a mobile home.

To meet the VA loan occupancy requirements, the house you buy must be your main home within 60 days of the purchase. You can't use a VA loan to buy a vacation home or an investment property. However, you can use it to buy a one-to-four family home as long as the eligible member lives there.

Your Credit Score

Since the VA doesn't set a minimum credit score for VA loans, each lender sets its own minimum credit score requirement. For a VA loan from Rocket Mortgage, your credit score needs to be at least 580. If you want to turn all of your home's equity into cash, you need a credit score of at least 620.

Your Income vs Debts

Your debt-to-income ratio (DTI) will be looked at by your lender to see if you can pay back the loan. Your debt-to-income ratio (DTI) shows how much of your monthly income goes to paying off debt. Your lender might put a limit on your DTI, but the VA doesn't. Some lenders will set a different maximum DTI based on things like your credit score and the amount of your down payment or equity.

VA Loan Limits

The VA doesn't put a cap on how much you can borrow, unless your entitlement has been affected. But when loan limits do apply to a VA loan, they are usually based on conventional loan limits, which for contiguous U.S. states as of 2023 are at least $726,200. Also, lenders often use the conventional loan limits as the lower limit for VA jumbo loans.

Some places with high costs have higher limits. If you need more than that, you may be able to get a VA jumbo loan, which doesn't require a down payment and may have a lower rate than regular jumbo loans.

Down Payment And Your Assets

VA loans are one of the few loan options that do not require a down payment. Your lender may have certain rules for a VA loan with no down payment.

For example, they might want you to have a higher credit score if you're putting down less than 10%, or they might want you to have a certain credit score for any loan that fits within standard limits.

It's important to remember that "no down payment" doesn't mean "no cost." Even if you're putting nothing down, there are some other fees to be aware of in addition to the closing costs of a VA loan. Here's a quick look at just a few:

The Funding Fee

Most people who get a VA loan have to pay a funding fee, which covers the cost to taxpayers. Most of the time, the VA funding fee is between 1.4% and 3.6% of the loan amount. If you've had a VA loan before and want to do a VA Streamline, the funding fee is 0.5%.

The cost of the fee depends on your type of service, the size of your down payment or amount of equity, whether this is your first VA loan, and whether you're buying or refinancing the property. There are no funding fees for surviving spouses, disabled veterans, and Purple Heart recipients who are still on active duty.

But don't worry. Most of the time, if you don't have the money right away, you can add the VA funding fee to your mortgage.

Reserve Funds

Most loans require you to have extra money in the bank that you're not using for upfront costs. This makes sure that you will be able to pay back the loan after it closes. The cost of your mortgage payment, including the principal, interest, taxes, and insurance, will tell you how much money you'll need left over. Even if it's not required, it's a good idea to have enough money saved to cover two months of mortgage payments.

Cathy Hills
Content Associate
January 27, 2023
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