VA Loans: VA Loan Eligibility & How to Apply

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The Department of Veterans Affairs (VA), offers a type of loan known as a VA loan, which can allow veterans to borrow money to purchase a home or refinance an existing mortgage loan.

As you prepare to buy your first home or refinance your mortgage, you might be wondering if a VA loan is the right solution for your financial situation.

There are several things you should know before taking out a VA loan, including some financial planning basics. If you’re considering a VA loan, here’s what you need to know.

What Is a VA Loan?

The Department of Veterans Affairs offers a type of mortgage loan known as a VA loan. These loans are specifically designed to serve veterans of the United States military. These loans are different from typical mortgage loans because they offer special terms that may be more favorable to the borrower.

While securing a VA loan can be a good way to get the funding you need to purchase a home while avoiding high interest rates, the process of applying for a VA loan is a little different. Before you apply, you should learn about how VA loans work, VA loan benefits, and the requirements for applying for a VA loan.

How Does a VA Loan Work?

While VA loans are offered through the Department of Veteran Affairs, the VA doesn’t actually loan you the money for a mortgage. Instead, the VA backs a portion of these loans for qualifying veterans, which means private lenders are able to provide loans with better terms.

It’s also important to note that there are several types of VA loans, so not every VA loan is equal. For example, there are different types of loans available depending on whether you want to buy your first home, reduce your interest rate, or perform a cash-out refinance. We’ll talk more about those in the next section.

Before you take out a VA loan, make sure you have a basic understanding of how they work and who’s funding your loan.

Types of VA Loans

VA loan is a catch-all term for any mortgage loan that’s backed by the Department of Veterans Affairs, but that doesn’t mean all VA loans are the same. In fact, there are a few different types of VA loans, each of which is right for a different type of borrower. Check out this list to learn more:

VA purchase loan: A VA-backed purchase loan gives you the funding you need to purchase a primary residence (a home that you’ll be living in). With no down payment and lower interest rates, these loans can help veterans afford a home to live in.

VA renovation loan: VA renovation loans give you access to the money you need to repair or renovate a fixer-upper. This means that you can use a VA loan to purchase and fix up a home that ordinarily wouldn’t qualify for VA loan funding.

VA cash-out refinance: These loans let you replace your existing loan with a new one, plus you can get access to your home equity in the form of cash if you need quick cash. It’s important to consider your options before using a cash-out refinance.

VA interest rate reduction refinance: One of the common reasons to refinance is to lower the interest rate on your loan. With a VA interest rate reduction refinance, you can lower your interest rate so you aren’t paying as much for your mortgage.

VA Loan Requirements

In order to qualify for a VA loan, you’ll need to meet certain VA home loan requirements. Individuals who apply for a VA loan will need to have a Certificate of Eligibility, which essentially tells the VA that you’re eligible for one of these loans. In order to qualify for VA loan eligibility, you must meet at least one of the following requirements:

Have at least 90 days of service during wartime

Have at least 181 days of service during peacetime

Be a member of the National Guard or Army Reserve for at least 6 years

Have at least 90 days of active service under Title 10 or Title 32; at least 30 days of your Title 32 service must be consecutive

Be the spouse of a service member who died in the line of duty or as a result of a service-related disability

Once you meet one of these VA loan requirements, you can obtain a Certificate of Eligibility to apply for a VA loan.

VA Loan Benefits

There are several potential benefits to applying for a VA home loan, including favorable loan terms and lower closing costs. Here are some of the biggest benefits you can enjoy from applying for a VA loan instead of a traditional mortgage loan:

No down payment required

No private mortgage insurance (PMI)

Minimal restrictions in terms of where you can buy and what you can spend

Limited closing costs

No prepayment penalty

While there are lots of reasons you may want to apply for a VA loan, it’s important to keep in mind that all the basic rules of buying a home still apply. You may want to use an inflation calculator and look at real estate trends in the area to make sure you’re getting a good deal on the home you purchase.

How to Apply for a VA Loan

Now that you know a little more about VA loans, you might be wondering how to apply for a VA loan. Just like a regular mortgage loan, there are certain steps you need to follow when it comes to applying for a VA loan and purchasing a home with a VA loan.

Obtain a Certificate of Eligibility (COE)

The first thing you need to do to apply for a VA loan is to obtain a Certificate of Eligibility. This certificate essentially proves that you’re eligible for a VA loan through one of the VA home loan requirements. You can apply for a Certificate of Eligibility online using the Department of Veterans Affairs e-Benefits portal, or you can have a loan officer request your COE electronically. You can also request a Certificate of Eligibility by mail using VA Form 26-1880.

Find a Lender

Now that you’ve got your Certificate of Eligibility and you know how to budget to buy a home, it’s time to find the right lender. You need to make sure you choose a lender who’s approved by the Department of Veterans Affairs, as these are the only lenders who can originate VA mortgages. You can also look for a lender who specializes in VA loans rather than offering them alongside traditional mortgages—that way you can find a lender who knows VA loans inside and out.

Get Pre-Approved

Once you’ve found a VA-approved lender and have your COE, you can get started with pre-approval. You don’t have to get pre-approved for a VA loan, but it’s a smart idea for most home buyers. Getting pre-approved lets you know how much money you have to spend so that you can start shopping for houses within your budget.

Find a Home

Now that you know how much money you have to spend on a home, you can start the shopping process. It’s a good idea to work with a real estate agent who specializes in VA loan transactions, that way you can make sure you’re getting the most out of your VA loan benefits.

Make an Offer

When you find a home you want to purchase, you can talk to your real estate agent about making an offer. This is one of the last steps in purchasing a home, so make sure you only make an offer on homes that you really want to purchase.

Undergo a VA Appraisal

Before you can actually buy a home, a VA appraiser will have to take a look at it. VA appraisers help you make sure you’re not paying too much for a home, which in turn helps lenders avoid loaning you money on a home you’re paying too much for. This is standard practice with any type of mortgage.

Close on Your Home

Once all the previous steps have been completed and your offer has been accepted, you can close on your home. VA loans often come with lower closing costs, and you may or may not need to worry about having private mortgage insurance. During the closing process, it’s important to talk with your real estate agent about what you need to do as a buyer.

Final Notes

Securing a VA loan can be a good way for veterans to purchase a home, but these loans work a little differently from traditional loans. If you’re still a ways off from buying a home, you can use our savings calculator to figure out how much you can start saving to buy your first home.

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