If you’re on active duty, a military veteran, or the surviving spouse of someone who has served in the military, buying a home could be more affordable than you realize, thanks to VA loans. “The whole program is designed to get the veteran that house that she or he wants,” said Robert Greenblatt, a top real estate agent in Cherry Hill, New Jersey, with 12 years of experience who is certified as a Military Relocation Professional. Greenblatt has a few relatives who served in the military and estimates that about one-quarter of his business is assisting clients with VA loans. Nearly 90% of VA-backed home loans have no down payment, a huge benefit when trying to build, buy, refinance, or even renovate a home, according to the U.S. Department of Veterans Affairs. However, the misconceptions about this type of loan process can scare off borrowers (and even some real estate agents). Those who know these loans inside and out say apprehension can dissuade buyers from a lot of potential savings. “It really is designed to help the veteran become a homeowner or become a homeowner again,” Greenblatt said. “They can get more than one VA loan in a lifetime, and in some cases, they could have more than one VA loan at a time simultaneously. It’s pretty impressive.” Let’s explore what makes VA loans unique and how to apply for one if you think this special type of mortgage is right for you. When people speak of “VA loans,” they’re technically referring to “VA-backed” or “VA-guaranteed loans.” Private lenders, such as banks and mortgage companies, still provide these loans, but the VA guarantees a portion of the loan, enabling the lender to provide more favorable terms. Loans from the Federal Housing Administration (FHA) and Veterans Affairs (VA) loans accounted for 18.7% of the $920 billion in mortgage loans issued at the end of the first half of 2019, according to Inside Mortgage Finance and the Urban Institute of Washington, D.C., a nonprofit research organization founded in 1968. (The VA does serve as a mortgage lender for the Native American Direct Loan program, which helps Native American veterans and Native Americans who are not veterans purchase homes on tribal land. But this is a small portion of the loan program, closing 23 loans in FY 2018.) In FY 2018, the VA guaranteed 610,513 loans totaling $161.3 billion, records show. First-time homebuyers accounted for 159,714 of VA purchase loans during this time period. The VA Home Loan Guaranty program was initially part of the Serviceman’s Readjustment Act of 1944, also known as the GI Bill of Rights. It was part of a national effort to avoid the economic recession historically associated with postwar periods and transition from the wartime economy of World War II to a peacetime economy, according to the Veterans Benefits Administration. The program’s objective is to help not only veterans but surviving spouses, active-duty personnel, and members of the Reserves and National Guard purchase, retain, and adapt homes in recognition of their service. Recipients also can use VA loans to refinance existing home loans and improve a home by installing energy conservation measures such as solar heating. As of Jan. 1, 2020, the VA will not set a cap on the value of any VA loan, thanks to the Blue Water Navy Vietnam Veterans Act of 2019, enacted in June. While the VA does not limit the actual loan amount you can borrow, they do limit the amount they will guarantee to the lender, i.e., how much they are willing to repay to the lender in the event you default on the loan. As such, any limits in the VA lending program don’t really limit how much a mortgage company is willing to lend, but instead how much they will lend without requiring a down payment. Additionally, individual lenders may have their own limits, depending on your income, credit score, a home’s market value, and other factors typically involved in calculating mortgage eligibility. If you qualify for a VA loan, you are granted an “entitlement” by the VA, which is the minimum amount the VA is willing to guarantee on the veteran’s behalf. The “basic entitlement” is $36,000 and generally a lender will be willing to lend up to 4 times the amount of the entitlement without a down payment. However, VA-eligible borrowers in most of the US are granted an additional “full” or maximum entitlement amount equal to 25% of the conforming loan limit for the county where the property is located. That means that in most of the US, a VA-eligible borrower with sufficient credit and income would be able to borrow up to $484,350 without any down payment. And in counties where the conforming loan limit is higher, as in Los Angeles County, New York City metropolitan area, Alaska, and Hawaii, that loan amount could be as much as $726,525 without a down payment. Because there is no loan limit, so long as the borrower has sufficient income and credit history, the borrower can borrow more than the conforming loan limit, but will have to be prepared to make up the difference between their maximum entitlement amount and 25% of the loan amount as a cash down payment. For example, let’s assume you want to buy a $500,000 home in El Paso County, CO where the conforming loan limit is $484,350. The maximum entitlement the VA will guarantee on your behalf is 25% of the loan limit, or $121,087. 25% of $500,000 (the cost of the house in El Paso) = $125,000. You would be expected to make up the difference in cash, or a down payment of $3,913. To qualify for a VA loan as a service member, veteran, reservist or National Guard personnel, you first must have served for a minimum required time period (generally 90 days, 181 continuous days, or two years). You also must have been discharged or released under any condition other than dishonorable discharge. The VA lists the specific length of service as follows: An unmarried surviving spouse of an eligible veteran who died as a result of service or service-connected conditions also is eligible for a VA loan, as is the spouse of an active-duty member who is missing in action or a prisoner of war. Before applying for a VA loan, you must submit evidence of your military service to obtain a Certificate of Eligibility. Veterans typically need a DD Form 214, with the narrative reason for separation. Active duty personnel, reservists, members of the National Guard, discharged personnel, and surviving spouses need different paperwork. Visit the VA benefits website for details. You then can apply for a Certificate of Eligibility by mail, online, or through your lender. The VA doesn’t set minimum income requirements for VA loan borrowers, so you could be eligible for a VA loan no matter the size of your paycheck. According to Military.com, the largest online military and veteran membership organization with 10 million members, the VA will consider a variety of income sources you bring to the equation, provided the source meets certain benchmarks. For example, in the VA sphere, a job must be a minimum of 30 hours per week to qualify as “full-time” work. VA lenders will also factor in self-employed or part-time work if you can show a two-year history and certain likelihood of continuance. However, as is the case with any other loan program, VA lenders want to make sure you can actually afford the house you buy, so they’ll take a look at what’s called your debt-to-income (DTI) ratio and use that to gauge how much loan you qualify for. DTI represents a measure of all your monthly debt payments (think: housing, credit card, car, and student loan payments) as a slice of your gross monthly income. There’s no universal DTI cap for VA loans. However, certain lenders who offer VA loans may have their own internal DTI guidelines that you’ll need to meet. Meanwhile, the VA will take a closer look at any borrower with a DTI exceeding 41%, according to Veterans United Home Loans of Columbia, Missouri, a VA-approved lender founded in 2002 that in 2018 provided more VA home loans by total volume than any other lender. Again, though, military borrowers will find different ratios among different lenders, with some allowing a debt-to-income ratio of 50% or higher. When you go to apply for a VA loan, expect to show proof of income such as: A lender likely will also want totals of your debts such as: The guarantee that VA provides to lenders allows for borrowers to have more favorable terms compared to other loans. These terms may include: Compare that to these others: Because of no required down payment, VA loans can have some drawbacks. Talk with a qualified local real estate agent, who can give you names of lenders in your area who are familiar with this particular loan product. You’ll need to gather the appropriate documentation for your Certificate of Eligibility, but a VA-approved lender can help with that as well. To find a qualified agent, ask around. How many VA loan buyers have they worked with? HomeLight notes on our agent profiles which agents have the Military Relocation Professional certification through the National Association of Realtors. This certification not only requires agents to have a detailed understanding of VA loans but also counsels them about dealing with the particular concerns of military personnel. “We deal with clients who have served four times in Iraq. They may have PTSD. They may be partially disabled. We have clients who are 100% disabled through the VA, and in NJ, they don’t have to pay property taxes if we do the right paperwork, which is huge,” Greenblatt said. This training also makes these agents sensitive to requests that others might not understand. “A few months ago, I walked into a closing. I was helping the seller, but the buyer was a veteran and just said, ‘I can’t sit there. I can’t have my back to the wall.’ I knew what that was about. I’ve heard that before,” Greenblatt said, noting that because of post-traumatic stress, his clients will like to sit on a certain side of the table. “If that’s the way it needs to be, that’s the way it needs to be.” Determining eligibility and applying for a VA loan is a complicated process, but take comfort in knowing that experienced professionals are available who can help you. Don’t hesitate to ask questions about any part of this process, which could put you on the path to owning the home you’ve imagined as a thanks for your service to the nation.VA loan basics: How common are these types of mortgages?
How long have VA loans been around?
What are the limits of a VA loan?
VA loan entitlements, explained
Who can apply for a VA loan?
What are the VA Loan borrower eligibility requirements?
VA loan benefits: What’s the upside?
Are there any disadvantages to VA loans?
I’d like to apply for a VA loan. What should I do?