Dave Porter

A Look at Veterans Administration (VA) Home Loans

Before I get started, I’d just like to say that if you have served in our military, I thank you for your service. You have certainly earned any and all veteran benefits our government provides, including Veteran Administration (VA) Home Loans. VA loans are only for veterans surviving spouses and provide many advantages over conventional options.

Here are some highlights:

 • Only Owner-Occupied. VA requires that the veteran lives in the home as her/his primary residence. VA loans cannot be used to purchase investment or vacation properties. This does not mean, however, that down the road the veteran can’t turn the home into a rental and then buy another.

 • No- or Low-Down Payment. VA offers active duty and honorably discharged veterans the opportunity to buy a property with no (zero) money down, up to $548,250. And larger loans are available with some money down. But there is in fact no maximum VA loan amount.

 • Low Credit Score. When it comes to credit, VA is very flexible. A borrower could have been through Chapter 7 bankruptcy finalized two years prior to loan application—as opposed to a conventional loan which would require a four-year waiting period. And in the case of foreclosure, VA will consider a new loan after 2 years while conventional loan programs (Fannie Mae and Freddie Mac) would require a 7-year waiting period. And with an VA loan your credit score can be as low as 580, while other loan programs require a higher minimum credit score.

 • Allow Down Payment & Closing Cost Assistance. If you can negotiate with the seller to pay your closing costs that means you can buy a home with no money down (i.e., no money out of pocket). In fact, the seller could even pay off some of your debts to help you qualify, if negotiated (although in a seller’s market environment, you shouldn’t plan that you can negotiate that). If the seller chooses not to pay the costs, a relative could gift the funds needed for closing costs. 

 • Energy Efficient Mortgage: VA allows for a borrower to add $3,000 to the home loan to pay for energy improvements without the appraisal supporting the increased amount. In this scenario, the veteran gets a bid for the improvements (such as a new high-efficiency furnace) and provides it to the lender as part of the application. The work does not have to be completed before closing. The funds are deposited by the lender into an escrow account. Once the work is done, it is reinspected, and the funds are released to the contractor. There is also an option to include improvements (such as energy efficient windows) up to $6,000. This involves a bit more paperwork but again the appraisal does not have to support it. Other energy improvements which exceed $6,000 (like solar) also can be added but in this case the appraisal—assuming the improvements—needs to support the increased value.

 • Partial Entitlement: Even if a veteran has a VA loan already in place this does not necessarily mean the veteran can’t use VA eligibility to get another loan. There are calculations to determine how much the veteran can obtain altogether.

 • Qualifying: Most lenders look at gross, consistent, monthly income and use a figure of 43% to cover debts and the new house payment. I have seen that ratio go as high as 50%. 

 • VA Funding Fee: VA loans do not require mortgage insurance like a conventional or FHA loan but the VA does collect a VA funding fee which is a guarantee for loan repayment. The amount of the fee can be financed into the loan so the borrower does not have to pay it upfront. If the veteran was disabled while in service, then the VA funding fee is waived. (chart source: www.va.gov)

 • No Prepayment Penalty. There are various loan terms (10, 15, 20, and 25 years) but the most common is the 30-year amortization. VA does not impose a prepayment penalty so the loan can be paid off in full or partially at any time.

This information is not intended to be an indication of loan qualification, loan approval or commitment to lend. Loans are subject to credit and property approval. Other limitations apply. Rates, terms and availability of programs are subject to change without notice. State disclaimer: loanDepot.com, LLC, NMLS ID 174457. www.nmlsconsumeraccess.org Licensed by the OR Division of Finance and Corporate Securities, Mortgage Lending ML-4972. | WA: Licensed by the WA State Department of Financial Institutions, Consumer Loan Company CL-174457. | ID | CA: Licensed by the Department of Business Oversight under the California Residential Mortgage Lending Act CRMLA 4131040.

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