What You Should Know About VA Loans
Homestead Financial is an approved VA lender. When you seek a mortgage through us, we loan you the money for your purchase, and the VA guarantees a portion of that loan. It is basically an insurance policy on the loan, which is why you’re able to get one with such a low down payment. When we work with the VA, you reap the benefits.
VA loans enable you to buy a new home, purchase a fixer-upper and finance the repair costs, or simply refinance and repair your current home. While a VA loan gives you lots of options for how you can use your home loan, you cannot use it to purchase a vacation house or investment property. It will only apply to your primary residence, that is, where you live most of the time. Compared to conventional and FHA loans, a VA loan has a lower down-payment requirement and almost always better interest rates for the duration of your loan.
With a VA loan, you are also eligible to purchase a condo, if it is on the VA’s approved condo list. You also can use your VA loan to buy a manufactured home, as long as it meets minimum property standards, is on its own private land, and is on a permanent foundation.
Basic Qualifications for a VA Loan
Just like with any mortgage, there are minimum qualifications you must meet to take out a home loan. First, you will need to provide a valid Certificate of Eligibility (COE). You can apply for this document through the Veterans Administration website, or by filling out a request form and submitting it by mail. If you are the surviving spouse of a veteran, or the spouse of a veteran who is missing in action or is a prisoner of war, you may also qualify for a COE. If you need help obtaining your COE, Homestead Financial can help!
All borrowers on the loan must have acceptable FICO credit scores. The government does not require any minimum scores, but does allow individual mortgage lenders to determine their own requirements. Generally, we recommend you have a credit score of 620 or higher, however, and you cannot be in default for any other type of government loan. You must also have an acceptable income to be able to pay for the loan while you own the home.
Your income is measured through a debt-to-income ratio (DTI). Usually, the maximum DTI you can have while qualifying for a VA loan is 41 percent, but every mortgage lender is different. A DTI of 41 percent means that no more than 41 percent of your income should go toward paying off all your debts each month — including auto loans, student loans, and other debts. To compare, the maximum DTI for a conventional loan is usually between 36 and 45 percent.
Let’s take a look at a DTI example to illustrate what we mean. Let’s pretend your gross income — the total amount of money you earn each month — is $5,000. Your debt obligations each month are a $300 car payment, $100 toward your credit card balance, and your new mortgage payment of $1,600. That’s a total debt obligation of $2,000. Divide that debt obligation by your gross monthly income. In this example, your DTI is 40 percent, and you’d qualify for a VA loan.
VA Loan Funding Fees and Other Obligations
To get a VA loan, you have to pay a funding fee, which is based on the percentage of the total loan amount. This fee can vary by year, so always check with your mortgage lender. Funding fees range from 1.4 percent to 3.6 percent, and depend on whether you have a down payment, if this is your first VA loan or not, and your type of military service. There are certain reasons you can be waived from paying a funding fee, as well as reasons you may receive a refund of the fee.
When you purchase a home with a VA loan, you also will need to pay for certain closing costs. You can negotiate with the seller of the home to pay up to 4 percent of the closing costs, called seller’s concessions, including your VA funding fee. Work with your realtor to determine how much of the closing costs you’d like to ask the seller to pay when you put in an offer on a house for sale.
Unlike with other non-conventional loans or conventional loans with less than 20 percent down payment, you will never have to pay Private Mortgage Insurance (PMI) on your VA home loan. This is just another reason to take full advantage of your VA benefits, and it can save you hundreds, if not thousands, of dollars per year.
Property Requirements for VA Loans
If you don’t plan to pay a down payment with your VA loan, there are limits to how much money you can borrow. Your loan amount will vary depending on the county where you live, and some places where Homestead Financial lends, like St. Louis, MO; Overland Park, KS; and Glen Carbon, IL; have larger limits for places with higher costs of living. Commonly, the limit for a single unit is $510,400, but the amount is subject to change.
As with any government-backed loan, the VA requires the property you buy to be safe, sanitary, and structurally sound. Cosmetic issues do not affect your loan, but the appraiser who values the home will consider the foundation, roof, and heating and cooling systems (if applicable). Any necessary repairs made to the home must adhere to special VA guidelines.
Why Choose Homestead Financial for a VA Loan Near You
Homestead Financial is a VA loan direct lender, so when you work with us to get a mortgage, we’re the ones who approve your loan. This enables us to get you to closing as quickly as possible, all while we provide excellent service throughout the process.
Contact us today to get pre-approved so you can begin working with your real estate agent to find the home of your dreams!