Everything you must know about VA Home Loans by: Myriel Legaspi / Phil Georgiades, VA Home Loan Centers (877) 432-5626 What began as an act by Congress meant to reward the effort of our brave men and women in uniform returning home from World War 2 has become one of the best, if not the best, home loan programs available. The acclamation of these home loans stems from the fact that they offer incentives that are not available in any other home loan.
VA Home Loan History
The first iteration of VA home loans happened on June 22, 1944, as part of the Servicemen's Readjustment Act, signed into law by President Franklin D. Roosevelt. This version of the VA loan was exclusive for Active Duty Service Members and Veterans as long as they used it within two years after their military service ended.
About twenty-six years later, the VA loan went through some more changes with the Veterans Housing Act's signing on October 23, 1970, by President Richard Nixon. This new law saw the removal of the two-year termination date. Eventually, on October 28, 1992, the Veteran Home Loan Program Amendments were signed into law by President George H.W. Bush. This new law saw the extension of benefits to members of the National Guard and military reserves.
The most recent changes made to VA home loans happened on June 25, 2019, by the signing of the Bluewater Navy Veterans Act by President Donald Trump. This law saw the removal of loan limits, which the VA placed depending on the county. The law also made some changes to the VA funding fee by increasing it for Active Duty Service Members and lowering it for members of the National Guard and military reserves.
VA Home Loan Benefits
The constant changes made to VA home loans have allowed 22 million borrowers to become homeowners. This is because these loans have some great benefits, including:
- No Down Payment Requirements.
- Low-Interest Rates.
- Lower Monthly Payments.
- No Mortgage Insurance Premiums
- No Prepayment Penalties
Additionally, the VA loan can also be used to finance the funding fee itself. They can also be taken out in either 15 or 30-year fixed-rate mortgages.
In addition to these great benefits, VA home loans are now free from loan limits allowing borrowers the opportunity to purchase a property anywhere in the country without having to limit themselves based on a limit created by the VA. The only limit now is the borrower's ability to make their monthly payments with lenders like VA Home Loan Centers having loan limits as high as $5 million for eligible applicants.
However, the loan limit removal is meant for first-time borrowers only. Any borrower with more than one active VA loan is still required to adhere to the VA loan limit, which as of January 1, 2021, at $548,250 in most counties. Although to enjoy these benefits, the borrower is required to meet the loan eligibility requirements.
VA Home Loan Eligibility Requirements
Meeting VA loan requirements depend upon the applicant meeting military service, property, income, and credit score requirements.
- Military Service Requirements
In addition to the applicant being an Active Duty Service Member, Veteran, or a qualifying spouse, they must also meet service requirements set up by the VA. These include:
· Ninety consecutive days of active duty service during wartime or 181 days during peacetime.
· Six years of service if the applicant served on the National Guard or military reserves.
· An eligible spouse must have lost their loved one while in active duty or as a direct result of a service-related disability.
- Income Requirements
Having a qualifying income requires the applicant to have an income that proves their ability to make their monthly mortgage payments and any outstanding debts. Another eligibility requirement for income is making sure that the applicant meets the VA compensating factor requirements. Moreover, an eligible income must come from one of the following:
· Social Security
· VA Disability
· Full-Time Job
· Part-Time Job, for at least two years.
· Self Employed for at least two years.
· 1099 for years.
· Retirement or Pension.
· Seasonal Job for at least two years.
· Child Support for three-years.
· Alimony with a three-year continuance.
· Rental income reported to the IRS.
Other forms of income, such as unemployment, GI Bill basic housing allowance, cash payments, and workers compensation, are not deemed eligible by the VA.
- Credit Score Requirements
The VA does not have a set credit score requirement, and it is up to the lenders. Most lenders have a credit score requirement of 640. However, some of them are willing to assist applicants with low credit scores. How willing lenders are to give out a loan to someone with a low credit score depends on the applicant's late payment history, mortgage payments, and possible collections.
- Property Requirements
Properties that are eligible for the VA home loan must meet specific requirements like being a:
· Single Family Residence is safe to move into without any health or safety hazards present at the time of purchase.
· A Multi-Family Dwelling of up to four units, without any health or safety hazards. The applicant must also occupy one of the rooms.
· Condos and Townhomes, but the VA must approve the condo. If the applicant is unsure or if the condo is not approved, they can submit it for VA approval.
· Manufactured Homes and mobile homes, but mobile homes must be doublewides, and both of them must be set on a permanent foundation.
Some properties do not qualify for the VA home loan, and these are homes located in flood hazard areas with no flood insurance and Airport Noise Zones 3 (Very Noisy). Other properties that are not eligible are cooperatives, timeshares, and non-VA-approved condos.
VA Refinancing Loans
The VA Home Loan is not only for applicants looking to purchase a home. The loan can also be used to refinance an existing property. The VA offers two types of refinancing loans: Interest Rates Reduction Loans and Cash-Out Refinance Loans.
- Interest Rate Reduction Loans (IRRRL)
These are sometimes called Streamlined loans, which can help in refinancing an existing loan on a property with a new lower interest VA loan. The refinancing process is straightforward and can also lower out-of-pocket expenses due to its ability to finance both fees and closing costs. This loan cannot be used for cash-out on equity, and borrowers can borrow up to 100% of the current loan amount.
Eligibility for this loan requires the applicant to prove that they are currently occupying the property. They must also prove that all mortgage payments have been made on time for the last 12 months.
- Cash-Out Refinance Loans
The VA also has loans that are meant for borrowers who want to cash out on home equity from either a conventional or a VA home loan. The VA Cash-Out Refinancing loan can be used on any property regardless of whether the original loan was administered by the FHA, USDA, VA, or conventionally. The cashed-out money can be used to pay off debt, finance home improvements, or finance an emergency.
Up to 100% of the current home value can be refinanced, and it can be used to finance the funding fee and the closing costs. Additionally, applying for these loans also requires applicants to follow underwriting guidelines established by the VA.
Conclusion
Using the information provided above will allow current and former military members to make an informed decision when using a VA loan on their future home. These loans have helped more than 22 million people achieve the dream of homeownership. West Valley Appraisal Services has posted this informative Blog to help Veterans better understand their VA Home Loan benefits. This article was created by a "for profit" 3rd party mortgage broker specializing in VA home loans. West Valley Appraisal Services does not endorse VA Home Loan Centers or any independent mortgage broker.