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This is a comprehensive guide to VA Loans in 2024. Explore how a VA loan can make homeownership more accessible and affordable.
In this guide you will learn about:
Let's go!
Are you dreaming of owning your first home, but struggling to navigate the complexities of mortgage financing? VA loans might be the key to unlock the door to your new home. Created specifically for veterans, service members, and eligible spouses, VA loans offer many benefits that make homeownership more accessible and affordable.
One of the best aspects of a VA loan is purchasing a home with little to no down payment. Unlike conventional loans that often require large down payments, VA loans require no down payment, allowing first-time homebuyers to preserve their savings for other expenses associated with homeownership.
VA loans have more competitive interest rates, potentially saving buyers thousands of dollars over the life of their loan compared to conventional financing options. This lower interest rate can significantly reduce monthly mortgage payments, making homeownership more affordable.
Additionally, VA loans offer more flexible credit requirements compared to conventional loans, making them accessible to individuals who may have had past financial challenges. This flexibility can be beneficial for buyers who are still building their credit history or who are recovering from previous setbacks.
VA loans do not require private mortgage insurance (PMI), further reducing the overall cost of homeownership. PMI is a monthly fee required on conventional and FHA loans when the borrower's down payment is less than 20% of the home's value. By eliminating this requirement, VA loans offer even greater savings.
Navigating the path to homeownership can be daunting, but VA loans provide a clear and accessible route for first-time home buyers. With benefits including no down payment, competitive interest rates, flexible credit requirements, and no PMI, VA loans empower veterans, service members, and eligible spouses to achieve the dream of owning their first home. Take the first step towards homeownership today and explore the possibilities with a VA loan.
The key benefits of VA loans include:
- No Down Payment Required:
- VA loans allow eligible borrowers to become homeowners without a substantial upfront cash requirement.
- Conventional mortgages and FHA mortgages require a down payment (3% for conventional, 3.5% for FHA).
- Lower Interest Rates and Fees:
- VA loans come with competitively low interest rates, making them an attractive option for eligible borrowers.
- The closing costs associated with VA loans are generally limited, reducing the financial burden.
- VA loans are generally considered less risky for lenders because they are guaranteed by a government agency (the U.S. Department of Veterans Affairs).
- No Mortgage Insurance:
- VA loans do not require private mortgage insurance (PMI).
- This is a significant advantage, as PMI is required for conventional loans with less than a 20% down payment, and is required for FHA loans. Depending on your credit score and loan amount, PMI can cost hundreds of dollars per month.
- Easier Credit Qualification:
- The VA loan program has more flexible credit requirements compared to conventional loans, making them accessible to individuals with less-than-perfect credit histories.
- The interest rates on conventional loans are heavily influenced by your credit score. Credit scores have less of an impact on VA loans.
- The interest rates on conventional loans are also influenced by the size of your down payment. On VA loans the interest rate is the same if you do $0 down or 10+% down.
- The maximum debt-to-income (DTI) ratio is higher on VA loans than on conventional loans, meaning you can qualify for a more expensive house.
- No Prepayment Penalties:
- Borrowers can pay off their VA loans early without facing prepayment penalties, providing greater flexibility in managing their finances.
- Paying an extra $100/month can knock years off your mortgage.
- Convenient Refinancing Options:
- The Interest Rate Reduction Refinance Loan (IRRRL) allows you to refinance your existing VA loan to obtain a lower interest rate.
- This streamlined process simplifies refinancing for VA borrowers.
- A new appraisal is not required and your income is not re-verified.
- Assumable by Veteran Buyers:
- VA loans are assumable, meaning that if you sell your home, the buyer can take over your existing VA loan. This is a great selling feature if your interest rate is lower than the current rates.
- See Chapter 9: VA Loan Assumptions
- Use More Than Once:
- If you sell your home your VA entitlement can be restored for use on a new loan.
- In some situations you can have more than one VA loan. You can keep your current home as a rental property and buy a new home using another VA loan.
- See Chapter 8: Multiple VA Loans
VA home loans are provided by private lenders, such as banks and mortgage companies. The VA guarantees a portion of the loan, enabling lenders to offer more favorable terms to eligible borrowers. If you're considering a VA loan, explore your benefits and make the most of this valuable program!
- Funding Fee Required:
- While VA loans do not require private mortgage insurance (PMI), they do come with a funding fee at closing.
- This fee can be financed into your loan, but it increases the total amount you owe.
- The VA Funding Fee varies based on factors like whether it's your first use of the VA loan benefit and your downpayment percentage. See Chapter 6: The VA Funding Fee
- Property Restrictions:
- VA loans are for primary residences and do not cover investment properties or vacation homes.
- You must personally occupy the home within a reasonable time after closing.
- You need to live in the home for at least a year before it can become a rental property.
- The VA loan guidelines make sure the borrower gets a home without health or safety issues. Examples:
- If a home has a well for water there are required water tests.
- If there is peeling exterior paint it must be repaired prior to closing.
- Less Equity to Start:
- The ability to put $0 down is a significant benefit of VA loans, but it can also be a disadvantage.
- With the VA Funding Fee rolled into the loan you can finance more than the home's value, which means you could start out with no equity in your home.
- Sellers and Agents May Not Be Familiar:
- Some real estate professionals may not be well-versed in VA loans.
- This lack of familiarity could lead to misunderstandings or delays during the home-buying process, or your offer to purchase not being accepted.
- There is a "VA escape clause" that is part of the purchase contract. A VA buyer is allowed to cancel the contract if the appraisal comes back lower than the purchase price and the seller won't lower their price. This gives more leverage to the buyer and some sellers don't want to take that risk.
- Higher Allowable Debt-to-Income (DTI) Ratio:
- While a higher DTI ratio can be an advantage for qualifying, it can also be a disadvantage.
- Borrowers with a high DTI may face financial strain if unexpected expenses arise.
- Only for primary residences:
- You need to live in the home for at least a year before it can become a rental property.
Despite these disadvantages, VA loans offer many benefits, including no down payment, no PMI, and competitive interest rates. It's essential to weigh both pros and cons to make an informed decision based on your unique circumstances.
Let's explore the eligibility requirements for a VA loan:
- Service Requirements:
- To be eligible for a VA loan, you or your spouse must meet the minimum service requirements set by the Department of Veterans Affairs (VA). These requirements include:
- active-duty Service: If you've served for at least 90 continuous days, you meet the minimum active-duty service requirement.
- Veterans: The minimum active-duty service requirements depend on when you served:
- You must have been discharged honorably.
- Gulf War Period to Present (August 2, 1990, and later):
- At least 24 continuous months, or
- The full period (at least 90 days) for which you were called or ordered to active-duty, or
- At least 90 days if you were discharged for a hardship or a service-connected disability.
- For service prior to the Gulf War, see the full list of service requirements here: https://www.va.gov/housing-assistance/home-loans/eligibility/.
- National Guard: The minimum service requirements depend on when you served:
- If you are not currently active, you must have been discharged honorably.
- Gulf War Period to Present (August 2, 1990, and later):
- At least 90 days of federal active-duty service (ADT does not count)
- Any other time period:
- At least 90 days of active-duty service (ADT does not count), or
- At least 90 days of active-duty service including at least 30 consecutive days (your DD214 must show 32 USC sections 316, 502, 503, 504, or 505 activation), or
- 6 creditable years in the National Guard and you were discharged honorably or placed on the retired list
- Reserves: The minimum service requirements depend on when you served:
- If you are not currently active, you must have been discharged honorably.
- Gulf War Period to Present (August 2, 1990, and later):
- At least 90 days of active-duty service
- Any other time period:
- At least 90 days of active-duty service (ADT does not count), or
- 6 creditable years in the Selected Reserve
- And at least one of these must be true:
- You were discharged honorably, or
- You were placed on the retired list, or
- You were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable, or
- You continue to serve in the Selected Reserve
- Note: if you have served in multiple capacities, you can qualify with any of the above that are applicable. For example if you were active-duty but are now in the National Guard you would use your active-duty service to qualify.
- The full list of service requirements can be found here: https://www.va.gov/housing-assistance/home-loans/eligibility/
- Surviving spouses of a Veteran may qualify, see the link above.
- Eligible branches include:
- US Air Force
- US Army
- US Coast Guard
- US Marines
- US Navy
- US Public Health Service
- US Space Force
- National Oceanic & Atmospheric Administration (NOAA)
- Certificate of Eligibility (COE):
- To apply for a VA loan, you'll need a Certificate of Eligibility (COE) from the VA.
- The COE shows your lender that you qualify based on your service history.
- Your lender can download your COE from the VA Lender Portal, or you can get it yourself online.
- If you are active National Guard or Reserves the VA may need a Statement of Service to verify your service.
- If you are retired National Guard or Reserves the VA may need your DD-214, NGB Form 22, etc. to verify your service.
- Credit and Income Requirements:
- VA guidelines do not have a minimum credit score but most investors require at least a 620 mid score.
- The guideline debt-to-income (DTI) ratio is 41% but it can be higher with a higher credit score or if you have a few months of mortgage payments in savings. Sometimes 60% DTI is acceptable.
- You will need steady employment that is "likely to continue".
- If you are active-duty enlisted and have less than a year before your ETS date then you will either need:
- A signed letter on letterhead from your CO or HR that you are eligible to re-enlist, and a signed letter from you that you intend to re-enlist, or
- A "valid offer of civilian employment" that includes the start date and salary.
- If you are National Guard and your contract has less than a year remaining then you will need one of the same items above.
- Asset Requirements:
- You just need enough cash to close. Even with a $0 down payment there are other costs at closing like lender fees, title fees, homeowner's insurance, reserves for taxes and insurance, prorations for current year taxes, etc.
- If you have a high DTI ratio and lower credit score you may need extra savings to qualify. You can use 50% of the balance in your TSP as savings.
- On a multi-unit property purchase you will need 6 months of mortgage payments in savings.
- For each rental property you will need 3 months of mortgage payments in savings. You do not need savings for your departure residence if it is being converted to a rental.
In summary, VA loans provide valuable benefits, including no down payment and competitive rates. If you meet the eligibility criteria, explore this excellent option for your home financing needs!
The VA loan limit varies based on several factors. As of 2024, here are the key points:
- Full Entitlement Left:
- If you have not used your VA benefit, or you have fully restored it, then there is no limit to the amount the VA will guaranty. You can buy a $2,000,000 house with $0 down, assuming you can qualify for the payments.
- Partial Entitlement Left:
- If some of your entitlement is currently in use (eg you still own a house that has or had a VA loan on it, or you had a prior foreclosure and the VA covered the loss), then the amount the VA will guaranty for a new VA loan is limited. The total amount of loans the VA will guaranty is based on the FHFA conforming loan limits by county, which updates each year. The applicable county is the county where you are buying the new property. FHFA loan limits
- Standard VA Loan Limit:
- The standard VA loan limit for most US counties is $766,550 for 2024. Alaska is considered a "high-cost" area, see below.
- High-Cost Counties (Alaska, Hawaii):
- In high-cost counties, the VA loan limits can exceed the standard amount.
- The highest limit for a home in these areas is $1,149,825 for 2024.
- For all areas in Alaska the VA loan limit is $1,149,825 for 2024.
| City/County | Loan Limit |
| Anchorage | $1,149,825 |
| Chugiak | $1,149,825 |
| Eagle River | $1,149,825 |
| Fairbanks | $1,149,825 |
| Homer | $1,149,825 |
| Juneau | $1,149,825 |
| Kenai | $1,149,825 |
| Ketchikan | $1,149,825 |
| Matanuska/Susitna | $1,149,825 |
| North Pole | $1,149,825 |
| Palmer | $1,149,825 |
| Wasilla | $1,149,825 |
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- Here's how to calculate your remaining entitlement and your maximum loan amount:
- The VA guarantees 25% of the loan amount. If there is a foreclosure and the house sells for less than the loan amount, the VA will reimburse the lender up to that 25% guaranty.
- If you have active loans, your COE will show the amount that is currently charged against your entitlement. Use the higher of the "Loan Amount" or 4 times the "Entitlement Charged".
- Subtract the amount charged from the county loan limit and this is how much is left for a new loan.
- For example, let's say you are buying a home in Alaska and your COE shows an existing VA loan of $222,129 and entitlement charged of $60,026.
- Since $60,026 x 4 = $240,104 is greater, you would use this amount as entitlement already used.
- The VA will guaranty ($1,149,825 - $240,104) = $909,721 for a new loan.
- You can go over the amount of your remaining entitlement. You will need to bring in 25% of the amount over as a down payment. Back to our example:
- Let's say you want to buy a $1,009,721 house, which is $100k over your remaining entitlement. You would need to bring in ($100k x 25%) = $25k as a down payment.
- This is only 2.5% down. The minimum down payment for a conventional loan is 5% so the VA loan would require much less cash. Plus a conventional loan with less than 20% down would have PMI.
The VA Funding Fee pays for the VA loan program. Buyers typically roll the funding fee into their loan but the buyer can pay it in cash at closing or the seller can also pay it with a seller credit. Veterans with a service related disability may be exempt from the funding fee. Purple Heart recipients are also exempt.
- Purchase
- $0 to 4.99% down payment:
- First time use: 2.15%
- Subsequent use: 3.30%
- 5.00% to 9.99% down payment:
- 10.00+% down payment:
- Cash-out Refinance
- First time use: 2.30%
- Subsequent use: 3.60%
- Interest Rate Reduction Refinance (IRRRL)
- Assumption
There are 3 types of VA loans:
- Purchase Loan: Helps you buy a home at a competitive interest rate without requiring a down payment or mortgage insurance.
- Interest Rate Reduction Refinance Loan (IRRRL): Allows you to refinance your existing VA loan to obtain a lower interest rate. There is no appraisal and no income documentation is needed.
- Cash-Out Refinance Loan: Lets you tap into your home equity for other purposes, such as paying off debt or making home improvements.
If you already have a VA loan or have previously used a VA loan, you may still be able to get another one.
There are two scenarios where you can be eligible for another VA loan:
- Restored Full VA Entitlement:
There are 2 ways to restore your full VA entitlement:
- Sell your home and pay off the VA loan.
- Pay off the VA loan by refinancing to a non-VA loan. You are still on title to the property. The VA allows for a one-time restoration of entitlement.
- Note: Some lenders will have you believe that if you refinance to a non-VA loan you can get automatic restoration of your entitlement. Besides the one-time restoration above, this only works if you are able to refinance the home with only your non-veteran spouse on the loan (or pay it off with cash) and "quit claim" the veteran off title. This basically counts as a "sale".
- Note: If you sell your home to a qualified veteran and they assume your loan they must have completed a "substitution of entitlement" with the VA for your entitlement to be restored. If a non-veteran assumes your loan your entitlement will remain locked up until the loan is paid in full
Reduced VA Entitlement:
If you've already used your VA benefit but still have some entitlement available. Your maximum VA loan guaranty amount is limited. See Chapter 5: Maximum Loan Amount.
VA loan benefits can be used again and again, provided you meet the qualifications for reuse. Whether it's your first or subsequent VA loan, explore the advantages of this valuable program!
A VA loan assumption allows a buyer to take over an existing VA loan from the seller. Assumptions take 30-60 days.
Here are some key points:
- Interest Rate and Terms:
- The buyer assumes the interest rate and terms of the existing loan, which can be beneficial if the rate is lower than current market rates.
- The loan amount stays the same. The buyer needs to pay the seller the difference between the purchase price and the current loan amount in cash at closing. It might be possible to obtain secondary financing for this but it adds complexity to the transaction and the current lender may not approve the assumption.
- Eligibility and Approval Process:
- The buyer doesn't need to be a veteran or service member to assume a VA loan, but they must meet the VA's credit and income requirements.
- To get the process started the seller contacts their current loan servicer. The loan servicer will work with the buyer to collect the necessary documents.
- The loan must have a 6 month payment history and must be current.
- Any liens or assessments on the property must be paid, except for the current loan.
- The loan must be assumed by individuals. No trusts or LLCs are allowed.
- The loan cannot be assumed by a party already on the loan except in cases of a finalized divorce or the death of a borrower:
- If the veteran whose entitlement was used is retaining the property then there is no credit or income qualification.
- Otherwise the normal assumption process applies.
- There is no VA Funding Fee for these assumptions.
- If a VA loan was modified at any point it is not eligible for assumption.
- VA Entitlement:
- If the buyer is a veteran with sufficient entitlement, they can substitute their entitlement for the seller's, freeing up the seller's VA loan eligibility for future use. The buyer must occupy the property as their primary residence.
- If there is no "substitution of entitlement" then the seller's entitlement stays locked up with the property until the property is sold by the buyer, the loan is refinanced by the buyer, or the loan is paid off. If there is a foreclosure then the lender's loss will get charged to the veteran's entitlement, even though they no longer own the property. The buyer does not need to occupy the property as their primary residence.
- Costs:
- There is a 0.5% VA Funding Fee on an assumption unless the buyer is exempt. Since the loan amount does not change the funding fee needs to be paid at closing. The VA Funding Fee is a percentage of the loan amount.
- There is no appraisal required on an assumption.
- Regular purchase closing costs still apply, like title escrow fees, recording fees, reserves for taxes and insurance, homeowner's insurance, partial month's interest, etc. There is no "lender's title insurance" required since the loan does not change.
- The lender may charge a small fee for processing the assumption ($300). They may also charge for a credit report and a title search fee.
- The seller's escrow for taxes and insurance is not refunded to the seller. It stays with the lender. The buyer will need to refund the transferred escrow balance to the seller.
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