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Many financial assistance programs have been made available to veterans impacted by COVID-19, several of which were just created this year in response to the pandemic. Other veterans programs have been on the scene for a long time: VA loans, for example, backed by the Department of Veterans Affairs, have helped veterans pursue homeownership for more than 70 years.
“Veterans and service members have earned access to what’s arguably the most powerful mortgage option on the market today,” says Chris Birk, director of education for Veterans United Home Loans, a dedicated VA mortgage provider based in Missouri. “VA loans have some truly unmatched benefits for qualified homebuyers. They also have more flexible and forgiving credit guidelines than many conventional loans.”
In contrast to conventional mortgages, veteran home loan qualifications have undergone fewer changes in recent months. This can offer a path to homeownership for service members who might otherwise be shut out of home financing in this age of historically low rates.
What is a VA Loan?
VA loans have been around since 1944 when the GI Bill of Rights was passed toward the end of World War II. The goal was simple: to provide veterans with better access to homeownership. The fundamentals of the VA loan program remain in place today: veterans who qualify can access mortgages with no money down, competitive interest rates, and extremely low closing costs.
There are four types of home loans available through the U.S. Department of Veterans Affairs. The first is a direct loan in which the VA acts as your mortgage lender, although this loan type is only available to Native American veterans. The other three are VA-backed loans, which means an approved private lender issues you a mortgage guaranteed by the VA. These include purchase loans, interest rate reduction refinance loans, and cash-out refinance loans.
Why Use a VA Loan?
Veterans who qualify for a VA loan can benefit from many advantageous terms. For one, no down payment is required, and buyers who go this route are not required to purchase mortgage insurance (PMI) as they normally would. Interest rates also trend lower than conventional mortgage rates, which can lead to thousands saved over the life of the loan.
Instead of a down payment and other upfront costs paid by those getting a mortgage, VA loans come with a one-time funding fee. This fee is charged based on a percentage of the total loan amount, which varies by loan type. “The funding fee protects taxpayers in the event a VA loan goes into default, since VA loans don’t come with a mortgage insurance requirement,” explains Kevin Crooks, Jr., a branch manager with AAFMAA Mortgage Services, a Virginia nonprofit that provides financial support to military families. “Disabled veterans and servicemembers can be exempt from the funding fee.”
|VA Pros||VA Cons|
|No down payment needed||Only available to veterans|
|Low interest rates||Involves a funding fee|
|Reduced closing costs||Can be subject to price limits|
|Mortgage insurance not required||No standardized financial requirements|
How to Qualify for a VA Mortgage Loan
There are a few different qualifications for a VA loan, but the main one is you must be a current or former member of the military, or a surviving spouse of someone who served. Active duty members can qualify for a VA loan after 90 days. Conditions for former military personnel depend on the years during which you were on active duty; wartime veterans generally have shorter minimum service requirements. If you’re not sure whether you qualify, you can refer to the VA home loan eligibility list.
While the VA does not publish official credit score guidelines and leaves these requirements up to each lender, the consensus among experts is that it’s easier to get approved for VA loans compared to a traditional mortgage. “Credit score requirements can vary by lender and other factors, but the minimum score veterans need for a VA loan is often lower than conventional benchmarks,” says Birk. “VA loans also allow veterans to bounce back faster after derogatory credit events like a bankruptcy or foreclosure.”
All things considered, VA home loan eligibility has remained relatively stable as mortgage availability plummeted in response to the pandemic. “Credit score minimums went up slightly, but they still remained a very flexible option for individuals who might not qualify for conventional loans,” says Crooks, Jr. “The VA also helped facilitate transactions in several ways, including allowing exterior-only appraisals and waiving termite inspections in moderate to heavy areas.”
As with all types of loans, there are pros and cons to financing a home through the VA. But for most qualified veterans, the terms available through a VA loan can’t be matched by conventional mortgages.
Is a VA Loan Best for Me?
Veterans are free to choose between a VA loan and a conventional mortgage, and the best option isn’t always obvious. “VA loans tend to have a few more pieces of red tape tied to the loan process, and may not be as attractive to a seller in an apples-to-apples comparison with someone bringing a conventional loan to the table,” says Nathaniel Hovsepian, a Marine Corps veteran and owner of The Expert Home Buyers, a real estate investment firm in Georgia.
Bureaucracy notwithstanding, Hovsepian views VA loans as the best long-term option for veterans. “We always recommend using a VA loan if you are able to qualify. This is especially true if you don’t have enough of a down payment to qualify for a conventional loan.”
The best way to decide whether a VA loan is the right option for you is to apply. Meanwhile, you can also talk with lenders about conventional mortgages. By comparing rates and terms of different available options, you can make an informed decision on which type of mortgage makes the most sense for your personal situation. For assistance, contact your regional loan center to speak with a VA home loan representative.