A VA loan is a type of home loan guaranteed by the U.S. Department of Veterans Affairs. This loan can be used to purchase a home or refinance and existing mortgage at a low interest rate with little to no down payment and closing costs. VA loans are available only to those who have served in the United States military. One of the first steps in obtaining a VA loan is to understanding how the loan process works.
Obtaining the Loan
VA loans are like other home mortgage loans in which you must go through a lender, such as a bank or mortgage broker, in order to begin the application process. The lender will be able to pre-qualify you for the loan by processing the application and checking your credit history. For a VA loan, a certificate of eligibility or Form 26-1180 from the Department of Veteran Affairs is required to prove military service. A DD Form 214 release form may also be used. The lender will also pre-screen applicants to determine if their new home or existing home will be eligible to be funded by a VA loan. Some modular homes and condominiums on rented property may not qualify.
Eligibility
To be eligible, the applicant must be active in the military, previously served as military service personnel for at least 90 days or be retired or honorably discharged. A veteran's financial history must also meet certain criteria. The veteran must have substantial income or pension benefits that will be able to pay the mortgage each month. This is often times referred to as a debt to income ratio or DTI. The standard DTI guidelines for VA loans are approximately 41 percent. The borrower must also have a solid credit history. This means no late payments on credit cards or other revolving credit accounts for at least six months or more. Bankruptcies, judgments and high credit card balances may reduce the chances of being accepted for a VA backed loan.
Benefits
The benefits of obtaining a VA loan are that some of the pre-qualifying measures are more lenient than that of a conventional loan. The applicant can choose to refinance their current mortgage or obtain new property as long as they have never had a prior VA loan. VA loans allow for a past history of slow or late payments with explanation. VA loans allow homeowners to get into a home with little to no money out of pocket. Down payments are not required for a VA loan. According to Direct VA Loans, VA backed loans can be funded up to $417,000 with no private mortgage insurance required.
Home Requirements
A home inspection is often required to establish that the home is in good condition. A wood-eating pest inspection to check for termites and powder post beetles is required for all government backed loans. An appraisal of the property is needed to estimate value compared to the listing price or amount owed on existing loan.
Exceptions
There are some exceptions to qualifying for a VA loan. Any type of outstanding debt--especially a federal debt such as a student loan or tax lien must be paid in full before closing. A bankruptcy that is in repayment or recently discharged may also disqualify a borrower. For a refinance, if the home is in foreclosure or default, the borrower may not be eligible for refinance.
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