A VA home loan is a type of mortgage that helps make homeownership more accessible for eligible veterans, military service members, and surviving spouses. The loan is backed by the U.S. Department of Veterans Affairs and available through certain VA-approved lenders. If you’re interested in how does a VA home loan work and whether you might qualify, here’s a step-by-step guide to walk you through the process.
Table of Contents
- Key Points
- • A VA home loan is a government-backed mortgage specifically for eligible veterans, service members, and surviving spouses.
- • Homebuyers must obtain a Certificate of Eligibility (COE) as a first step toward being approved for the loan.
- • Key benefits of a VA loan include no required down payment and no private mortgage insurance, though the borrower must pay a VA funding fee.
- • A VA-assigned appraiser will need to make sure the house meets minimum property requirements before the loan can be finalized.
- • There are several types of VA loans, including purchase loans and Interest Rate Reduction Refinance Loans (IRRRLs), as well as a cash-out refinance option.
What Is a VA Home Loan and How Does It Work?
A VA loan is a mortgage backed by the federal government, which gives private lenders more confidence in approving applications to eligible individuals. On top of that, there’s no down payment required, enabling military members and veterans to buy a home faster than they could if they had to save up cash for money down.
Who Qualifies for a VA Loan?
Veterans, service members, and eligible surviving spouses are able to apply for a VA loan. There’s a minimum active-duty service requirement for veterans that varies based on when you served and whether you served during war or peacetime. Current service members (including National Guard and Reserve members) also have minimum service time requirements.
Surviving spouses may qualify if you get certain types of VA Dependency and Indemnity Compensation or your spouse is either missing in action or being held as a prisoner of war. Eligible individuals also need to meet the lender’s credit and income requirements for mortgage loans.
Recommended: Home Loan Help Center
How Do VA Home Loans Work?
There are seven steps to apply for a VA loan and make it to closing day.
Step 1: Determine Eligibility and Get a COE
The first part of the VA loan process is confirming your eligibility. First, make sure you meet the service or surviving spouse requirements. Then apply for a Certificate of Eligibility (COE), which is a document that shows lenders that you’re able to apply for a VA loan.
Lenders with specific VA loan experience may let you apply through their online system. Otherwise, you can apply for your COE directly through the VA. You’ll need to provide documentation that proves your service.
Step 2: Find a VA-Approved Lender
Not all lenders are authorized to offer VA loans, so you need to narrow your search to those that are approved by the U.S. Department of Veterans Affairs. Compare personal recommendations, online reviews, and loan terms (such as mortgage rates and fees) to help choose the best VA lender.
Step 3: Get Preapproved for a Loan
How does a VA loan work once you pick a lender? In addition to receiving your COE, getting a VA mortgage preapproval makes sure you likely meet the financial requirements of taking out a home loan. Your lender will look at your credit score, income, debt, and other financial information to give you a preapproved loan amount and interest rate. Some lenders have lower credit score requirements than they would for a conventional mortgage loan, and you could be approved with a score of 600 or better. Include your mortgage preapproval letter with your offer to strengthen your odds of getting chosen by a seller.
Recommended: VA Mortgage Calculator
Step 4: Shop for a Home
Next, it’s time to shop for a home that meets the requirements of a VA loan, which are stricter than conventional loan requirements. The home must be safe, structurally sound, and sanitary based on analysis by a VA-assigned appraiser.
When looking at houses, also consider sellers who are willing to let you assume their own VA loan. How does a VA assumable loan work? Essentially, you take over the seller’s existing mortgage in order to keep favorable loan terms (such as a low interest rate). The downside is you’ll need to cover the gap between the current loan and the sales price either in cash or another type of financing.
Step 5: Make an Offer and Sign a Purchase Agreement
Once you’re preapproved and have found a home you love, make an offer through your real estate agent. You typically need to disclose your home loan type in the offer letter, and you should also include your mortgage preapproval letter.
Step 6: VA Appraisal and Underwriting
An appraiser evaluates the property to make sure the loan amount doesn’t exceed the value. He or she also points out any necessary repairs that fall under the VA’s Minimum Property Requirements. This work will need to be taken care of before closing.
The underwriting process reviews your mortgage application and checks to see if there have been any significant changes to your financial situation. The underwriter verifies your income, confirms your credit, and reviews the property details before giving the final stamp of approval.
Step 7: Closing and Moving In
Closing on a VA loan is just like closing with any other type of mortgage. You must bring a photo ID, proof of your homeowners insurance policy, and payment for any closing costs you’re responsible for.
Types of VA Home Loans
How does a VA loan work for buying a house? It depends on the type of VA loan you use. There are actually several options to choose from.
VA Purchase Loans
A VA purchase loan is like a traditional mortgage. You can typically choose between a 15- and 30-year loan term and can select a fixed or adjustable interest rate. No down payment is required as long as you meet the income requirements. While there are VA loan limits if you don’t have your full entitlement, you can apply for any size loan with no down payment.
How does a VA jumbo loan work? If your entitlement is fully intact, you can apply for as much as you’d like with no down payment, as long as you can afford the payments. But some lenders may require you to have a few months of mortgage payments in savings.
VA IRRRL (Interest Rate Reduction Refinance Loan)
A VA IRRRL lets you refinance an existing VA loan to get different terms. The goal is to qualify for a lower interest rate or switch from an adjustable rate to a fixed one. In order to qualify, you must already have a VA loan and use the IRRRL for that loan. You also must certify that you either live in the home or used to live in the home covered by the VA loan.
VA Cash-Out Refinance
A VA cash-out refinance loan lets you tap into your home equity by replacing your current mortgage with a new, larger loan amount. Once the original lender’s balance is paid off, you’ll get the difference as cash. You can refinance both VA and non-VA mortgages.
Native American Direct Loan (NADL)
A Native American Direct Loan is for veterans who are Native American or are married to a Native American. With this loan, you can buy, build, or improve a home on federal trust land. Like a traditional VA loan, there’s no down payment required. NADL loans are not made by banks but rather through the VA directly, so it’s best to check eligibility directly with the VA.
Pros and Cons of VA Home Loans
Wondering if a VA loan is right for you? Consider the advantages and disadvantages first.
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Pros:
• No down payment required
• May have more lenient credit requirements
• No private mortgage insurance
• Rates are often competitive
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Cons:
• Must qualify for a Certificate of Eligibility
• Homes must meet specific condition standards
• Must pay a VA funding fee
One other consideration is how a VA loan works for the seller. Some sellers have the idea that VA loans take longer to close than conventional loans, and in a hot real estate market, that might be a factor. In truth, the difference between VA loan and conventional loan timelines is negligible. Moreover, the idea of any potential delay may be offset by the often higher closing rate that comes with VA loans.
The Takeaway
Once you understand what is a VA loan and how does it work, you will see that VA loans can make homeownership more accessible for service members, veterans, and surviving spouses. While the process takes some extra steps compared to a conventional mortgage, the financial benefits may be worth it.
SoFi offers VA loans with competitive interest rates, no private mortgage insurance, and down payments as low as 0%. Eligible service members, veterans, and survivors may use the benefit multiple times.
Our Mortgage Loan Officers are ready to guide you through the process step by step.
FAQ
Can I use a VA loan more than once?
Yes, you can use a VA loan more than once, as long as you have entitlement left from previous purchases. When you pay off a previous VA loan in full, you can replenish your full entitlement to qualify for another no down payment loan.
Can I buy a second home with a VA loan?
You can buy a second home with a VA loan, but you must use it as your primary residence. So how does a second VA loan work? The main factor is whether you need a down payment. If you don’t have full VA entitlement because of another VA loan, you may need to make a down payment on the property.
What credit score do I need?
The VA doesn’t have a required minimum credit score for a VA loan. Instead, individual lenders set their own qualifications, usually requiring at least a 600.
Can I use a VA loan for a fixer-upper?
It is possible to use a VA loan for a fixer-upper, but you won’t be able to use a standard VA loan if the property doesn’t meet the safety and sanitation requirements. Instead, you’ll need to qualify for a VA renovation loan that covers both the mortgage and the repair costs. How does a VA construction loan work? Once approved, contractors are paid through an escrow draw account. The lender oversees payments, but you get to approve every transaction first.
Do VA loans require a down payment?
VA loans do not require a down payment. However, you’ll need to meet the financial requirements for your desired loan amount in order to get approved.
Photo credit: iStock/AndreyPopov
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency. †Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency. Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
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