Select service members, veterans, and some surviving military spouses can take advantage of a specific lending scenario known as a veteran mortgage – more commonly referred to as VA loans.
Like many other types of home loans, there is a specific process to follow to obtain pre-approval for a veteran mortgage that enables you or a real estate agent to place offers and eventually purchase a home. In the following, we’ll explain VA loans and how they differ from other lending options, as well as walkthrough the steps to secure VA mortgages.
What is a Veteran Mortgage?Â
Those who served in the military are often eligible to take advantage of a specialized veteran mortgage (i.e., a VA loan) that offers unique perks. In most cases, a mortgage for veterans is the ideal option when buying a home for those who qualify.
Established in 1944, the program empowers veterans and service members to achieve the dream of homeownership through a unique set of advantages.
Understanding VA Loans: Benefits and Eligibility
A veteran mortgage is backed by the Department of Veterans Affairs, offering more flexible eligibility criteria than traditional mortgages. The three key benefits that make VA loans so attractive are:
- There’s no down payment required (but it can help). Conventional loans typically require a 20% down payment to avoid PMI, which can be a substantial barrier. Consider the 2023 median home price of $431,000 in the US – a conventional loan would require a down payment exceeding $86,000. A veterans mortgage loan eliminates this obstacle, making homeownership more accessible.
- The credit requirements are relaxed. Due to the government guarantee, credit score plays a less prominent role in VA loans. While the VA doesn’t have a minimum credit score requirement, private lenders may have their own criteria. However, these rates are typically lower than for conventional loans offered during the same period. Veteran home loan rates are some of the lowest available, translating to lower monthly payments that make homeownership more affordable..
- Mortgages are usually assumable. Many VA mortgages are assumable, meaning that should you decide to sell your home, a buyer may be able to take over the existing loan, inheriting your advantageous interest rate without needing a new mortgage. This can significantly increase your home’s appeal to potential buyers, especially in rising interest rate environments.
In most cases, a veteran mortgage provides exclusive home-buying veteran benefits, often beating out specialized lending scenarios like USDA and FHA loans. Because there isn’t a hard limit on how much you can borrow, a VA loan can sometimes be used for properties that would typically require a conventional jumbo loan, so long as the buyer has documentation demonstrating their ability to make payments. For homes that exceed lender limits for standard VA mortgages, jumbo VA loans are usually available to qualified buyers.
Determining Veteran Mortgage Eligibility
Another important aspect of understanding VA loans is knowing how eligibility is determined. Here, lenders rely on three key factors: military service, creditworthiness, and property characteristics:
- Military Service. The VA mandates minimum service requirements for giving out a mortgage for veterans. Generally, you need 181 days of active duty peacetime service, 90 days of wartime active duty service, or six years in the National Guard/Reserves (or 90 days under Title 32 with 30 consecutive days meeting specific sections). Spouses of fallen service members may also qualify. Discharges must be honorable or under specific conditions (e.g., service-connected disability).
- Credit and Income. While the VA doesn’t have a set minimum credit score, lenders often require 580-620. Debt-to-income (DRI) ratio should ideally be below 41%, but flexibility exists with sufficient residual income.
- Property Characteristics. VA mortgages are for primary residences only – not investment properties. Duplexes, triplexes, and quadplexes are permissible as long as you occupy one unit. The property must pass a VA inspection and be move-in ready. Loan limits exist based on location, with options for exceeding them through VA jumbo loans requiring a down payment (typically lower than conventional jumbo loans).
Understanding these requirements helps veterans and service members to determine their veteran mortgage eligibility and navigate the beginning stages of a homeownership journey.
A Quick Rundown of How to Obtain a Veterans Mortgage Loan
VA mortgages are much like any other home loan. Though you will need to provide additional documentation related to you or your spouse’s military service, the rest of the process is similar (if not easier) when compared with other mortgage types.
You’ll want to put together a budget around the time you start looking at homes to buy. It’s a good idea to get a handle on pricing in the area you’re seeking and to look into veteran home loan rates to determine how rates will affect monthly payments.
From here, you’ll need to work through the following steps:
- Gather Documents. Income verification (pay stubs, W-2s, tax returns), employment history, asset verification (bank statements), credit history (report & score), debt documentation, and ID.
- Budget and Timing. Consider pre-qualification to estimate buying power and target your search. Getting pre-approved for a veterans mortgage early clarifies affordability.
- Credit Check and Pre-Approval. A credit check for pre-approval is standard and has minimal impact on your score. Your score will still be checked for a VA loan – getting multiple quotes won’t harm your score if done within a 45 day period.
- Pre-Approval Letter. This document verifies your financial standing and strengthens your offer to real estate agents and sellers.
- Making an Offer. Use your pre-approval window (30-90 days) to find a suitable home. Your realtor will submit your offer, which may be accepted, countered, or rejected by the seller. If you can’t find something in this time, most lenders can extend this window without having to requalify you for a loan.
For a more detailed explanation of how to obtain a veteran mortgage pre-approval and take the first steps of your home-buying journey, please click here. And when all goes well, you can be moving into your new home using your VA loan in about a month’s time!
