07/06/2018
Drop And Give Me ZERO!!
Veterans Administration (VA) loans are a popular perk of military service, with competitive interest rates and little-to-no down payment required. While backed by the VA, these loans aren't government loans. They're offered through private lenders.
Eligibility
Requirements vary depending on whether you're a veteran or currently serving on active duty, whether you served or are serving in the National Guard or Reserve, and in which era you served. Here are a few general guidelines:
Current active-duty members are eligible after 90 continuous days of service.
Veterans who served after Aug. 2, 1990 are eligible if they served for 24 continuous months.
Guard members and reservists are eligible after 90 days of active service or six years of Guard and Reserve service.
Military academy cadets are also eligible, as are spouses in a few special circumstances, and individuals who served in certain government organizations. You can check full eligibility details, including different requirements for those who served before Aug. 2, 1990, at the VA website.
When you apply for a VA loan, you'll need a Certificate of Eligibility (COE). Most lenders have access to a website they can use to rapidly establish your eligibility and produce a COE. Since VA loan benefits can be reused, you'll need the COE every time you apply for a VA loan.
Financial Underwriting
A COE doesn't guarantee you'll be approved for a VA loan. You'll need to meet some financial guidelines set by the VA, and your lender will likely have a minimum credit score requirement.
One of those guidelines is your debt-to-income ratio, which looks at your monthly debt payments compared to your monthly income. This ratio is calculated by dividing your total monthly debts — including the mortgage, car loans, student loans and minimum payments on credit cards — by your monthly income before taxes. This is also called your "gross income."
Another consideration intended to make sure you don't bite off more debt than you can chew is your residual income. Residual income is the minimum amount of money the VA thinks you should have left over after taxes are withheld, and making your mortgage and other debt payments.
The residual income requirement varies depending on where you live, and lenders can make some adjustments to it for certain factors like living close to a military base where you have access to tax-free shopping.
There are many other guidelines for approval and they may vary between lenders and with each individual loan situation. You may need to put money down if you're borrowing more than $453,100 (as of 2017) in most parts of the country.
Funding Fee
Unlike many mortgages, VA loans don't require monthly private mortgage insurance (PMI). However, VA loans do require the payment of a “funding fee.” You can be exempt from the funding fee if you get VA compensation for a service-connected disability.
The size of the fee ranges from 1.25% to 3.3% of the amount you're borrowing, depending on:
1. Whether you served in active-duty military, or the Guard and Reserves.
2. Whether you've used your VA loan eligibility before.
You can either pay the funding fee at closing, or finance it by adding it to the amount you're borrowing. If you finance it, keep in mind that means you're making the funding fee more expensive over time because of the added interest. And, if you decide to not make a down payment, you'll initially owe more than your home is worth, which can create a challenge if you want to sell the property before building equity.
