When it comes to our military veterans, it makes sense to make sure that we are taking care of them. This includes ensuring that our military service members have access to programs that help them achieve their financial goals.
One of those goals might be owning a home. The Veterans Administration offers backing for loans so that military service members can get access to homeownership if they want it.
What are VA Loans?
“The VA loan is a no down payment program,” says Peter Louisell, a mortgage banker with Quicken Loans. He is a veteran himself, and recently bought a home using a VA loan. Even though Louisell bought his home using a down payment, it isn’t necessary with the VA loan program. “You can finance 100 percent of the purchase price,” he says.
It is important to note, though, that the fact that there is no down payment requirement doesn’t mean that nothing comes to closing with veterans. “You will have a funding fee,” Louisell explains. “However, this funding fee is usually minimal compared to FHA loan costs and conventional mortgage costs.”
The idea behind the VA loan program is to provide those with military service a way to purchase a home easily, and to do so at a reasonable interest rate. In some cases, a VA loan can have a lower rate than what you might see with a conventional loan, or with a FHA loan.
Who Qualifies for a VA Loan?
As expected, you need to have some military service if you want to take advantage of the VA loan program. “In general, you need two years of active duty, or six years as a reservist, in at least one branch of the armed services to qualify,” says Louisell. He warns that, occasionally, requirements change. Additionally, there might be different qualifications based on different war periods. He provides a helpful chart from Quicken Loans to illustrate some of the current requirements:
If you aren’t sure whether or not you qualify, you can talk to a mortgage banker or broker with knowledge of the VA loan program, or you can consult with a VA benefits specialist. The VA loan program is designed to help military service members get on their feet, and qualify for a stable place to live. It’s also worth noting that surviving spouses that meet certain requirements can also benefit from VA loans.
One of the benefits of the VA loan program is that there are relaxed credit score requirements. The government doesn’t actually have a minimum credit requirement for VA loans. If you apply for a FHA loan, and for some other government-backed loan programs, the government has minimum credit standards. This isn’t the case for VA loans. However, it is possible for individual lenders to limit their risks by imposing their own credit requirements.
Since the government isn’t issuing these loans — just guaranteeing them so that lenders will be willing to take on the risk associated with them — you do have to be aware of lender requirements. However, most lenders don’t have onerous credit requirements. Many will provide VA loans to former and current military service members with credit scores of 620, and some will even accept scores as low as 580. You will need to gather other documentation, though, to prove your eligibility for a VA loan, including some service records.
There are also other loan programs, including interest rate reduction refinance loans and adapted housing grants (related to disabilities resulting from military service), administered with the backing of the Veterans Administration that can help you stay in your home if you are struggling.
Is a VA Loan Right For You?
Louisell points out that, just because you are a veteran it doesn’t mean that a VA loan is the best option for you. “When I bought my last house seven years ago, I didn’t use a VA loan, even though I could have,” he says. “This time, though, I used the VA loan program because the interest rate was lower.”
The fees on a VA loan are generally lower, so, Louisell says, it really comes down to interest rate. And, just as you would shop around for any other type of loan or expense, it makes sense to shop around for your mortgage loan, comparing the programs offered by the Veterans Administration with your other options. “With a VA loan, you never have to pay PMI or other insurance, even if you don’t put down 20 percent,” Louisell points out, “so you just need to shop around for the best interest rate.”
With the economy improving and the housing market starting to pick up a little bit, it is clear that there are more options for home loans. Current and former military service members have a number of choices, including the VA home loan program. If you qualify, it’s worth considering a VA loan, but make sure it’s the best deal for you before you sign the paperwork.
Visit Quicken Loans to see what VA loans may be available to you.