Va Loan Guide: What It Is And How It Works
9 Minute Read | November 23, 2021
Buying a home is hard work. And if youre a veteran or serving in the military it can be more of a challenge compared to folks who arent.
Thats why the U.S. Department of Veterans Affairs created the VA loan as a mortgage option specifically for veterans.
Before we unpack what it is exactly, lets cover the top reasons why some veterans like VA loans:
- Zero down payment required
- No PMI fees
- You can use the loan multiple times
Sure, those points make the VA mortgage loan sound nice. But its not all sunshine and rainbows when you take a closer look at what the VA loan really is and how it all works.
Can You Use A Va Loan More Than Once
A VA loan allows you to put down as little as 0%,â said Michael Perlman, the assistant vice president of Silver Fin Capital Group in Great Neck, New York. âSome lenders even allow for a higher debt-to-income ratio threshold than conventional loan lenders, making it easier for eligible applicants to qualify for a loan. Interest rates and VA loans are often significantly lower than for conventional loans. And no monthly private mortgage insurance is required, whereas conventional loans require PMI when you put down less than 20%.
Fortunately, if you are a veteran, active-duty military member, surviving spouse or another person qualified for a VA loan, you can reuse your VA eligibility again and again to purchase a home as a primary residence.
A qualified borrower could use their VA loan benefit multiple times, said Rob Killinger, a senior loan officer with Mortgage Network, Inc., in Danvers, Massachusetts. For example, say a veteran takes ownership of a home, using his VA loan benefit to purchase it, but he decides three years later that he would like to sell that property and purchase another home. Once his current primary residence is sold, he would regain full VA entitlements and be able to use a new VA loan to buy his next primary residence.
Can You Have Two Va Loans At Once
It is possible to have two VA loans at once for two separate primary residences. Having two VA loans at once typically applies to active service members who receive PCS orders.
Rather than sell the home, you could look to rent it out and buy again at the new duty station using your remaining VA loan entitlement.
It can be a confusing subject, and it’s best to talk to an experienced loan officer about the VA’s occupancy requirements and if your unique situation allows you to have two VA loans at the same time.
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Lets Look At Some Common Scenarios Experienced By Repeat Va Loan Users
I want to keep my house and the VA loan and buy another home with a VA loan
Check if you have remaining VA entitlement. If the home cost less than $144,000, you may have some remaining entitlement amount.
If theres no remaining entitlement, try refinancing out of the VA loan to another type of mortgage such as an FHA or conventional loan. Once you refinance and pay off the underlying VA loan in full, you may be able to keep the home and request a one-time entitlement restoration.
I own a home and had a VA loan on it but refinanced into another loan type. I want to keep the house and buy again with a VA loan.
You should be able to do this if you request a one-time restoration of your VA loan entitlement. This is the only time youll be able to request restoration if you choose to keep the original home.
I bought a home with a VA loan but sold the home and paid off the loan in full.
You are probably eligible to receive a restoration of entitlement. But you need to request it, because it wont be automatically restored. You can do this as many times as you want, as long as you sell the home and pay off the loan in full each time.
Im selling my home to an eligible veteran who is assuming my loan
Its fine, as long as the veteran substitutes their entitlement for the same amount of entitlement you used originally. Restoration of entitlement can be requested in this case.
I bought a home with a VA loan but sold it in a short sale/it was foreclosed
Can I Use A Va Loan For An Investment Property
No. You cannot use a VA loan for an investment property, but you can turn your current home into a rental property while using a VA loan to purchase a new primary residence. You can also use your VA loan to purchase a multiple-unit property so long as you intend to make one of the units your primary residence. This scenario allows you to rent out the other units.
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When You Might Need A Second Va Loan
There are a few situations where you might need a second VA loan:
- If youre a service member who receives permanent change of station orders and you have to move to a new duty station. This would allow you to have two primary residences.
- If youre a previous VA loan borrowers who lost your home due to foreclosure, you can still use your VA benefit again after waiting a certain amount of time after your foreclosure. This is usually two years. However, if youre in financial hardship, you may qualify for financing sooner. Each lenders guidelines may be different.
- A VA loan assumption can restore your VA loan entitlement to full. An assumption means that someone else takes over your loan, assuming the interest rate, monthly payments and loan balance. This person must meet VA loan requirements themselves and be willing to transfer their own VA loan benefits, so your entitlement is restored.
- You can apply to have your VA loan entitlement restored in full once if you pay off your VA loan, but dont sell your home. This would allow you to purchase another home with a VA loan to be your primary residence, while keeping the other property to serve as a vacation home or rental property.
Va Loan Limits: No Maximum Loan Amounts In 2021
If youre a military servicemember or veteran, you may have access to a zero-down loan with no limit, as long as you qualify for the payment.
The Department of Veterans Affairs eliminated VA loan limits for most borrowers in 2020. That means first-time VA homebuyers, and others with their full entitlements, can borrow as much as lenders are willing to approve.
So the size of your VA loan now depends more on your financial credentials than on the local housing market.
VA loan limits still come into play for homebuyers who currently have VA loans and have partial entitlement available.
If youre a qualifying veteran, active-duty military servicemember, or an eligible surviving military spouse, now may be a great time to buy, with a shot at a 0% down mortgage and no loan limit on the type of home you can buy.
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How To Prepare For The Va Coe Application
The VA has a comprehensive COE application page that will list out exactly which documents you will need to have present depending on your status within the military. If you are a veteran or surviving spouse, youll need a copy of you or your veteran spouses discharge or separation papers . If you are currently serving on active duty, you will need a statement of service signed by your commander or a personnel officer.
What Is The Va Loan Limit
The VA home loan limit is the maximum amount an applicant can borrow without making a downpayment. However, an applicant with full entitlement is not restricted to any VA loan limits, meaning they can borrow as much as they qualify for.
What is entitlement?
Remember when we said that the VA will pay a certain amount to the lenders if the borrower defaults in any way?
This certain amount is called entitlementit can be either $36000 or 25% of the loan amount. A borrower who has not used their VA loan benefits or has repaid their previous loan fully has full-entitlement.
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Va Mortgage Loan Options
Purchase loan:
If you are a conventional home buyer, you will most likely be looking to secure VA-backed purchase loans. This loan will help you buy, build, or improve a home with a competitive interest rate and the option to put no money down without restriction.
Interest Rate Reduction Refinance Loan :
If you already have a VA home loan and would like to reduce your monthly mortgage payment or interest, an Interest Rate Reduction Refinance Loan could be the right choice for you.
Cash-out refinance loan:
A VA-backed cash-out refinance loan can help you take cash out of your home equity. This loan will replace your current loan with a new VA loan under different terms. You can also use a VA cash-out refinance to refinance a non-VA loan into a VA-backed loan.
We would also like to mention that the VA offers a Native American Direct Loan . If you are veteran, and either you or your spouse is Native American, you may qualify for this loan. Because the VA directly backs this loan, you do not need to contact a private lender the U.S. Department of Veterans Affairs will serve as your lender.
Example Of When Youd Have More Than One Loan At A Time
Lets consider a hypothetical: Alex received PCS orders and now has to move herself and her family across the county.
She has a VA loan on her current home and plans to buy a second home using a VA loan as well. In the process of moving, Alex has a hard time selling her home. Or maybe she just doesnt want to sell her home and would prefer to hold onto it and rent it out.
In this situation, as long as her credit and finances qualify her for a loan, shed be able to get a VA loan for her new primary residence while retaining her current home. If shes earning rental income on that home, she may also be able to use that income to offset the cost of the mortgage for her current home when she applies for a new, second VA loan.
However, Alex might be limited in how much she can borrow without having to make a down payment on that second VA loan, depending on how much of her entitlement is left.
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How To Calculate Second
When you purchase a home with a VA loan, some or all of your entitlement gets tied up in the mortgage. Because the VA usually guarantees a quarter of the loan amount, the entitlement you utilize is typically equal to 25 percent of the loan amount. For example, on a typical $200,000 loan, you’re typically using $50,000 of entitlement.
Do some simple math , and buyers in most parts of the country would have about $111,800 leftover in their remaining entitlement.
Veterans and military members purchasing in more expensive housing markets typically have more VA loan entitlement. VA loan limits are linked to the maximum entitlement amount, and this figure currently goes as high as $970,800 in costlier markets.
The remaining entitlement amount makes it possible for VA buyers to have more than one VA loan at the same time or purchase after experiencing foreclosure or short sale.
Va Home Mortgage Limits
You might be wondering exactly how much house can you buy with a VA loan. According to the VAs loan limit documentation, eligible veterans, service members, and survivors with full entitlement no longer have limits on loans.
With that being said, it is still up to your lender to determine how large of a mortgage you can borrow. Your mortgage banker will determine the size of loan you can afford by assessing your credit history, income, and any assets you may be holding.
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Benefits Of A Va Loan
The VA loan program offers a multitude of benefits, including:
Whether youre on your first, second, or 16th home purchase, a VA home loan is highly likely to be the very best mortgage you can find assuming youre eligible.
Please contact our support if you are suspicious of any fraudulent activities or have any questions. If you would like to find more information about your benefits, please visit the Official US Government website for theDepartment of Veteran Affairs or the US Department of Housing and Urban Development.
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Q: Is The Surviving Spouse Of A Deceased Veteran Eligible For The Home Loan Benefit
A: The unmarried surviving spouse of a veteran who died on active duty or as the result of a service-connected disability is eligible for the home loan benefit. If you wish to make application for the home loan benefit as a surviving spouse, contact our Atlanta Eligibility Center. In addition, a surviving spouse who obtained a VA home loan with the veteran prior to his or her death , may obtain a VA guaranteed interest rate reduction refinance loan. For more information, contact our Atlanta Eligibility Center.
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Va Loan Entitlement: What Is It
What is VA loan entitlement?
VA entitlement is the dollar amount the VA will repay a mortgage lender if the qualified borrower defaults or fails to pay their mortgage, said Sam Atapour, the branch manager for Embrace Home Loans in Ashburn, Virginia.
Typically, the entitlement guaranteed by the VA to cover any losses equates to 25% of the total loan amount. Basic primary entitlement is $36,000, although Atapour said most lenders will permit a loan up to four times that amountâ$144,000. A VA bonus entitlement provides the ability to borrow more than this amount.
Work With A Ramseytrusted Mortgage Specialist
To make the smartest decision when shopping for a mortgage, contact our friends at Churchill Mortgage. For decades, their home loan specialists have coached hundreds of thousands of people on how to get a mortgage that actually helps them pay off their homes faster.
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Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.
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Can You Use A Va Loan For A Second Home Or Investment Property
A second VA loan can be used to purchase a second house, but there are some restrictions. You must be entitled and financially eligible for the second VA loan. You must also show the VA that your second property provides a net tangible advantage.
These tangible advantages include but are not limited to:
- Closer proximity to your workplace
- An upgrade to a larger home
- Having to downsize
- Purchasing a home for your spouse that lives in another state
To be qualified for a second residence, you must have at least one net tangible advantage. These standards should not be too difficult to meet if you are a military member moving to a new state.
Va Loan Limits Dont Restrict How Much You Can Borrow
If you’re subject to VA loan limits and have found a property you really love and can afford you can still get a VA loan if it’s over the county limit. Its just a matter of coming up with a down payment. The required down payment will be subject to a formula based on your entitlement and home price.
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What If I Want To Purchase A Condo With A Va Loan
The Department of Veterans Affairs has a condo database of approved developments. If your dream condo is not on the VAs list, your lender can ask the VA to approve this development. Keep in mind that the VAs process for adding a new condo development to their approved list can take months and is not guaranteed to be approved once the process is over.
How Do I Check My Va Loan Eligibility
Loans from the Department of Veterans Affairs, commonly known as VA loans, are some of the most attractive home loans out there offering the potential for zero down payments and qualification with credit scores as low as 620. If you served in any branch of the U.S. military and separated under any condition that is not dishonorable, you might qualify for a VA loan.
In addition, if you served in the National Guard or Reserves and served active duty for the full period upon which you were called, you might also quality for a VA loan. Active duty service members, as well as the surviving spouses of veterans are also eligible.
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