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VA Home Loans Fact & Fiction

What do you need to know about VA mortgages before applying for one? Sometimes half the battle is knowing the facts and ignoring the myths and half-truths.

VA Loan Facts: Many Housing Types Are Possible

You can use a VA loan to buy, refinance, or renovate a suburban home, condo unit, mobile home or manufactured home, or even a duplex or multi-unit property. You can also buy a farm residence with a VA mortgage, but you cannot use a VA loan to buy a farm BUSINESS. A VA loan can be approved for residential property that is taxable as real estate, which means that RVs and houseboats don’t qualify. Nor does a mobile or manufactured home that won’t be placed on a permanent foundation.

VA loan rules do allow borrowers to consider a mixed-use or mixed zoning property as long as it is primarily residential and the non-residential use of the home does not interfere with it being a home.

It may be tougher to get VA loan approval for residential homes that don’t have any comparables on the housing market. You may not find a lender willing to offer home loans for tiny houses or other “fad architecture” properties. The age of the property may or may not be a factor in some cases; VA loans can be used for existing construction or new construction but an appraisal is required and the home’s “remaining economic life” may be a factor in loan approval.

VA Loan Fiction: Loan Limits

If you have 100% of your VA loan entitlement you do NOT have a VA loan limit the way conventional mortgages and FHA home loans do. That does not mean you can borrow any amount you want, you will need to discuss your purchase with a VA loan officer to determine what the upper limit of the mortgage will be in your case. Remember that you cannot apply for more home loan than you need with the expectation of getting cash back at closing time. VA loans like other residential mortgages, generally do not permit this except in the form of refunds for money paid upfront.

If you do not have 100% VA loan entitlement, you will be subject to a VA loan limit as established per county in each zip code.

 

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VA Loan Facts: Loan Entitlement

If you pay off a VA loan, you can apply for a one-time restoration of your VA loan entitlement without selling the home you purchased with your previous VA mortgage. If you refinance a VA loan with a VA Cash-Out Refinance, you have your loan entitlement restored because you paid the original loan off in full as part of the refinance process. If you are still paying on a VA mortgage but have remaining entitlement, you can use that amount for a new VA mortgage but keep in mind that the new loan will require occupancy as a condition of loan approval.

VA Loan Facts: Occupancy Rules Can Be Satisfied With Family Members

VA loans, like most government-backed home loan programs, require occupancy. The VA loan program recognizes that military borrowers are subject to deployments, permanent change of station moves, and other circumstances that may take them away from the home for extended periods of time. A spouse or dependent child who meets VA requirements can occupy the home in the borrower’s place to fully meet the VA occupancy requirement. VA loans don’t penalize the borrower for being deployed or reassigned.

VA Loan Facts: No Down Payment

While it IS true that VA home loans do not typically require a down payment, you could be required to make one of you choose to buy a home that has a sale price higher than the appraised value. Some borrowers may be asked to consider a down payment as a compensating factor for lower FICO scores, but that is a lender standards issue and not a VA home loan rule.

VA Loan Fiction: Mortgage Insurance

Conventional loans require private mortgage insurance. FHA mortgages have a mortgage insurance premium. VA loans, on the other hand, do not require either one. Remember that mortgage insurance is not the same as homeowner’s insurance or hazard insurance. Some people assume a typical mortgage might require you to put 20% down, but this is true of conventional loans where the borrower wants to avoid paying mortgage insurance.

VA Loan Facts: You Can Refinance A Non-VA Loan With A VA Cash-Out Refinance

Non-VA mortgages can indeed be refinanced using a VA Cash-Out Refinance loan. Non-VA loans cannot be refinanced with a VA Streamline Refinance loan which is intended for existing VA mortgages only and must result in a tangible benefit to the borrower.

VA Loan Fiction: You Can Buy Investment Property With A VA Loan

VA loans cannot be approved for Air b-n-b operations, bed-and-breakfasts, sorority or fraternity houses, vacation homes, second homes, time shares, or other properties you don’t intend to use as your home address. You cannot purchase a business with a VA mortgage, nor can you buy a non-residential property. There is a very easy way to understand VA loan rules for occupancy. If you do not intend to live in the property you buy with a VA purchase loan, you won’t be approved for the VA mortgage. Occupancy is a requirement to buy a home with a VA mortgage.

VA Home Loan Facts About Loan Eligibility

It is true that VA loans have different eligibility requirements depending on when you joined. Most people serving today on active duty as new recruits will need 90 continuous days of military service before applying for a VA Certificate of Eligibility or VA COE.

You can apply for your VA COE through the VA eBenefits portal, you can also get your loan officer to help you. But if you apply via your loan officer, don’t expect to get your Certificate if you apply before your minimum time in uniform has passed.

That may seem fairly obvious to some, but it’s easy to forget that for new troops serving on active duty today, 90 days of continuous service does not start counting down while in boot camp or advanced training such as Advanced Individual Training.

VA Loan Facts: Counting Down To VA Loan Eligibility

Your eligibility starts when you have graduated from the training phase and move into your first active duty assignment. For some troops, this may be a few weeks or months, but for some who require advanced training such as at the Defense Language Institute, the wait could be longer.

Your eligibility for the VA loan benefit is NOT the same as loan approval. One of the myths about VA home loans you should know is directly associated with this–when you get your VA Certificate of Eligibility you have not yet been approved for a mortgage. All applicants must credit-qualify.

VA Loan Fiction: There Are No Credit Scores Needed To Qualify

It is true that the VA does not specify a credit score range for loan approval but that does not mean there are no credit score standards. Those will be up to your lender to set. FICO scores may play a part in whether or not you get the most competitive interest rate which is an important aspect of the true overall cost of your mortgage.

VA Loan Fiction: VA Loan Interest Rates

The VA does not tell the lender what rates to set for its mortgage loans. Interest rates are a very important aspect of your VA home loan, and while your FICO scores may be used by the lender to establish what rates you may qualify for, the VA official policy is that the agency does not set mortgage rates in any way except to require them to be reasonable when compared to similar loans that are not VA mortgages.

Interest rates play a big part in the terms of your loan and lender requirements are not identical between all financial institutions. It pays to shop around for the best rates and it pays to find a participating lender who is willing to work with your FICO scores and other financials.

VA Loan Fact: VA Loans Cannot Be Used By Other Family Members

Some newcomers to the VA home loan program learn they may apply for a VA mortgage with a spouse even if the spouse is non-military. And while it is true that this type of VA loan is processed by the VA without regard to the spouse’s military affiliation, the spouse cannot apply for a VA mortgage on their own if they are not entitled to the VA loan benefit.

There IS an exception. Surviving spouses who meet VA loan criteria may apply for a VA loan, but they must apply according to VA rules and in general VA loan rules at press time state the spouse is only eligible for a new VA loan if they have not remarried. Certain exceptions may apply, you will need to speak to a VA loan representative to learn what the specific requirements are at that time.

VA loans are, generally speaking, only for the military member or veteran to use. You cannot transfer VA loan benefits to a dependent like you can with the GI Bill, and while a dependent child may be allowed to occupy the home in your place to satisfy the occupancy requirement, that same child cannot use your VA loan benefit.

 

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