Despite the loan program’s name, the Department of Veterans Affairs does not manage or issue loans under the VA mortgage program. Home loans under the VA program are issued by approved lenders, and the Department of Veterans Affairs offers security on the loan, assuring the lender that the risk taken by issuing the loan is rewarded with certain settlement if the buyer should default. Before you can purchase a home under the VA loan program, you need to complete the qualification process. If you work with a VA-approved lender, you can complete the pre-approval process and obtain a certificate of eligibility before you start shopping for that perfect home.
To qualify for a VA mortgage, you must qualify under either a wartime or peacetime service period. To qualify under wartime service, you must have served in World War II, Vietnam, the Korean conflict, or the war in the Persian Gulf. There are also several time periods during which you can qualify if you served during peacetime. Active duty service members must have served for at least 90 days with recertification required if you are discharged or released during the process. Members of the National Guard or Reserves may also qualify in certain circumstances. Surviving spouses of service members who have passed away during service are also eligible under some conditions. Exceptions can be made in many different situations, so it is always best to explore your eligibility with a VA-approved lender before assuming that you would not qualify for benefits.
Once you have obtained your eligibility certificate, you can shop for a home. The home must pass VA inspection standards. If there are any concerns during the inspection process, they must be resolved prior to purchase in order to obtain your financing. Another factor in the final approval process is the appraisal to loan value assessment. If the selling price is more than the VA’s appraiser estimates, you may need to negotiate with the seller before you will receive financing. For most VA mortgage loans, you will need a credit score of at least 640. If you plan to borrow over $400,000, the credit score requirements might be higher.
A VA mortgage comes with many benefits that you may not be aware of. When you buy your home through a VA loan program, there is typically no down-payment requirement, provided that you are not trying to borrow more than the appraised value of the home. There are no mortgage premium requirements with a VA loan, either. There are rules and regulations in place through the VA to restrict how much you can be required to pay in closing costs, and you may be able to permit the seller to cover your closing costs on your behalf. Unlike some traditional mortgage loans, if you pay off a VA loan early, you cannot be penalized, and the VA can offer some assistance if you are struggling with meeting your payment obligation.