If you’re a veteran of the military, you may be eligible for VA financing. This 100% financing program allows veterans to buy their dream home with no money down and the most flexible underwriting guidelines out of any program.
So, what is the VA loan and how does it work?
What is a VA Loan?
A VA loan is a loan backed by the Department of Veteran Affairs. It’s available to veterans who served at least 181 days during peacetime (90 days during wartime) and who had an honorable discharge.
The loan program provides 100% financing, so veterans don’t need a down payment on their loans. It also has some of the most flexible guidelines including:
- No minimum credit score requirement
- Debt-to-income ratios up to 50%
- Proof of stable employment or employment offer to start in the next 6 months
- Proof of enough income to cover the daily cost of living
How Does a VA Loan Work?
VA loans are simple loans. You apply with a VA-approved lender, not the VA. In fact, you never work directly with the VA. As long as you have proof of your entitlement (Certificate of Entitlement), you’ll never deal with the VA.
Your lender will underwrite the loan and fund it if you’re approved. The VA’s role is to guarantee the loan. This means if you default on the loan (don’t make your payments), the VA will pay the lender back a portion of the funds. This is how lenders are able to offer flexible guidelines and still provide 100% financing.
The VA Loan Funding Fee
The good news is that the VA doesn’t charge mortgage insurance. This means your mortgage payment consists only of your principal, interest, real estate taxes, and homeowner’s insurance.
But there is a funding fee you must pay. Most borrowers pay 2.3% of the loan amount for the first use of their benefits. If you reuse your VA loan benefits you might pay a higher fee. This is a one-time fee though, that you pay at the closing.
If you can’t cover the cost, you may be able to wrap it into your loan amount or ask the seller to cover it for you.
Are Spouses Eligible for VA Loans?
The VA treats veterans and their spouses as ‘one unit.’ So yes, spouses of veterans can be on the VA loan. But there’s another exception.
If a veteran loses his/her life during their time in service, the surviving spouse can use their benefits to get a VA loan as long as he/she remains unmarried.
VA loans are the most flexible and attractive loan option for veterans. If you served in the military and would like to use your VA loan benefits, I can help guide you through the process.
Sellers don’t avoid VA loans like most people think any longer. VA loans today are a simple and effective way to buy your dream home with the flexible financing you deserve for serving our country.