The Department of Veteran’s Affairs (VA) Mortgage, VA mortgage for short, is a great mortgage loan available for current serving US military, reservists, Veteran’s and surviving spouses.  With the VA mortgage a borrower can buy a home with no money down, no Private Mortgage Insurance (PMI), and competitive interest rates.  VA mortgages are available for both first time homebuyers as well as someone who has bought a home before.  If you currently own a home using the VA mortgage for a refinance is also a possibility.  Learn more about the qualification requirements for the VA mortgage here and how a homebuyer or homeowner can benefit from the VA Mortgage.

Who is Eligible for a VA Mortgage?

Eligibility for the VA mortgage can depend on things like current duty status, length of service, and the character of service.  National Guard members need to have at least 90 days of active service with at least 30 days’ consecutive service.  Reservists also have a 90-day requirement of non-training active-duty service requirement, but without the 30-day consecutive service requirement.  Both Reservists and Guard members can also qualify for the VA mortgage when they have 6 years of creditable service and they continue to serve or were honorably discharged or retired.

Active-duty members once they have had 90 consecutive days of service become eligible to apply for a VA mortgage.  Surviving spouses of a deceased Veteran who was eligible for a VA mortgage may also apply for a VA mortgage provided they have not re-married (unless the re-marriage happened after age 57).  If the member was discharged due to a service-connected disability they also can qualify for the VA mortgage.  

To get confirmation of eligibility the mortgage lender will obtain a Certificate of Eligibility (COE) for the borrower from the VA to confirm eligibility.  Once obtained from the VA department the COE will provide details as to the borrower’s entitlement, how much their entitlement is (there is a limit) and whether the borrower must pay the VA funding fee.  

The VA mortgage is used for owner-occupied homes, meaning the borrower intends to live in the home as their own personal residence.  Using a VA mortgage to purchase a rental property is not allowed.  While there is no VA requirement as to how long the borrower must occupy the home, generally most lenders consider a 12-month guideline. That means that the borrower will occupy the home for at least 12 months after purchasing it.  With service members though, this may not always be possible when military orders require them to move elsewhere in furtherance of their mission.  As a result when a VA borrower is required to move based on orders, there should be no negative impact as a result.

A VA mortgage can be used to buy up to a four-unit building where the owner will live in one unit and will be allowed to rent out the other units.  So long as the owner occupies one unit as their primary residence, they can rent out the other units and not run afoul of the VA mortgage rules that state it cannot be used for investment real estate purchases.  A borrower who claims they will be occupying a home as their primary residence with no real intent to do so is committing occupancy fraud and could face consequences of immediate loan repayment, fines and prison time.

How the COE is Obtained

While the service member/Veteran can request a copy of their COE from the VA.gov website, generally this is something the lender will do for their borrower.  The documents needed for getting the COE will depend on whether one is a Veteran or current service member.  Veteran’s will need to provide a copy of their discharge papers which is usually the DD-214 form.  Active duty members will need to provide a signed statement from their commander, adjutant or personnel officer providing some information related to their service and be on a signed memo.  Current or former reserve members also can provide a similar memo as noted above or a DD-214 or other discharge papers as available.  Having these documents ready before even reaching out to the lender to explore VA options can save time when it comes to applying for the mortgage as the VA mortgage requires the COE as a very first step.

Benefits of the VA Mortgage

One of the biggest benefits for the VA mortgage is the ability to buy a home with no money down and not have any PMI payments.  The PMI is a requirement for conventional mortgages when the home buyer is putting less than 20% down payment towards the home.  PMI is basically insurance for the mortgage lender in the event the home buyer is unable to pay on their loan.  The PMI does not go towards reducing one’s principal nor the interest payment on the mortgage with a conventional mortgage.  So not having to pay any PMI is a big plus of the VA mortgage.

The VA does not provide for any minimum credit score requirements, the lenders on the other hand who offer VA mortgages will have their own criteria.  Since the VA mortgages are backed by the government, lenders will be willing to lend to VA eligible borrowers with a lower credit score requirement as compared to a borrower who is looking to buy with a conventional mortgage.  Most lenders will require a minimum score of 620, but some may consider borrowers with lower scores with added requirements.

VA Funding Fee

The VA funding fee is an upfront payment required to help offset the costs of providing a VA mortgage loan.  The funding fee can be financed into the mortgage loan.  The VA funding fee ranges from 1.25% to 3.3% and is based on the amount of down payment as well as whether this is the borrowers first or subsequent use of the VA mortgage.  Certain VA mortgage borrowers may be eligible for waiver of the funding fee based on their disability ratings and this will be noted on the COE form once obtained by the lender.

VA Mortgage Streamline Refinance

Also called the Interest Rate Reduction Refinance Loan (IRRRL) this refinance is a no cash out VA mortgage refinance done under more streamline conditions which means it is done faster than a traditional mortgage process.  The IRRRL can only be done if the original VA mortgage had its first payment made more than 210 days prior and six monthly payments have been made.  Cash out refinance can be done with a VA mortgage, but will not be done with the streamlined process as noted in this section.

There must be a net tangible benefit meaning that the interest rate must be low enough and not obtained through solely the payment of points.  There also must be “fee recoupment” which means the refinance fees charged to the borrower should be paid off based on the savings through the lower rate no longer than 36 months from the date of refinance.  Appraisal rules are less strict as well in that an exterior only appraisal may be considered acceptable under the IRRRL. The rules and restrictions associated with the VA IRRRL can be found here at the VA Website and should be explained to the borrower by their lender. 

VA Mortgage Myths vs Facts

Myth:  VA mortgages are only available for first time homebuyers.

Fact:  VA mortgages are not just for first time home buyers and can be used multiple times in one’s lifetime.

Myth:  VA mortgages are difficult to buy a home with due to strict appraisal requirements.

Fact:  While VA mortgages have certain standards the condition of a home needs to meet it is not in fact difficult to buy/sell a home with a VA mortgage.  The VA appraiser will look at the home in terms of livability, safety issues and structural integrity.  If a home is in good livable condition there should be no issues with using a VA mortgage.

Myth:  A VA mortgage can only be used to purchase a single-family home. 

Fact:  A VA mortgage can be used to buy up to a 4-family home so long as the VA mortgage borrower will be living in one of the units.

Final Thoughts

Interested in learning more about the VA mortgage and seeing what the current rates are?  Reach out to Paul Sian here via email, text, call or online form!