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VA Loans
What Is A VA Loan?
A VA loan, short for Veterans Affairs loan, is a mortgage backed by the Department of Veteran Affairs (VA). Established in 1944 under the Servicemen’s Readjustment Act, commonly known as the GI Bill of Rights, VA home loans were created to provide veterans with federally guaranteed housing without requiring a down payment. President Franklin D. Roosevelt signed the GI Bill into law, aiming to support veterans and their families by facilitating home ownership, thereby making the dream of owning a home a reality for millions of veterans.
Rates, Benefits, & Qualification Requirements
For current service members or veterans, specialized mortgages called VA loans are available to assist in home buying. With a VA home loan, you can purchase or refinance a home without needing a down payment, offering benefits such as immediate access to your dream home and lower interest rates. Fyzl Group is honored to support service members and veterans in finding the ideal mortgage solution tailored to their requirements.
How Does It Work?
VA guaranteed loans are provided by private lenders, such as banks, savings & loans, or mortgage companies, to eligible veterans for purchasing a home. The Department of Veteran Affairs ensures a portion of the home loan, acting as an alternative to the traditional down payment, which is usually required to safeguard the lender in case of borrower default. This guarantee, known as entitlement, serves as a substitute for a down payment.
The VA entitlement consists of two parts:
-Basic Entitlement: The VA insures up to 25% of loan amounts, capped at $144,000 or $36,000, whichever is less. Typically, both the basic and bonus entitlements are required for home purchases, unless in areas with relatively affordable housing.
-Bonus Entitlement: The VA insures up to 25% of loan amounts exceeding $144,000, up to the current conforming loan limit set by the Federal Housing Finance Agency. Bonus entitlements are utilized when purchasing homes above $144,000 and act as a secondary layer of protection for lenders in case of mortgage default.
What Documents Are Needed?
Navigating the VA home loan process can be daunting as it involves meeting both VA and lender requirements. However, having a clear understanding of the necessary documents can simplify this process.
To apply for either a traditional VA or VA jumbo loan, you should prepare several crucial documents to share with your lender:
1. Identification (ID): Lenders require a state-issued ID, such as a driver’s license or government-issued ID, to verify your identity.
2. Certificate of Eligibility (COE): The COE is specific to VA loans and confirms your eligibility for the home loan benefit. Meeting minimum service requirements is essential for eligibility. You can request your COE online from the VA or have your lender assist you by accessing their database.
3. Income Documentation: Lenders need evidence of your ability to repay the loan, which may include pay stubs, tax returns, bank statements, and W-2s. Bank statements also help assess your savings for covering closing costs. Typically, lenders prefer to see at least two years of employment history for VA loan qualification.
Additionally, your lender will request permission to review your credit history. Although the VA does not set a minimum credit score requirement, lenders do, though they often have more lenient requirements for VA loan borrowers.
What Is The Maximum Amount For A VA Loan?
In general, the maximum amount for a VA loan depends on individual circumstances, as the VA does not impose a specific borrowing limit for VA home loans. However, there may be restrictions on the loan amount you qualify for without a down payment, based on your entitlement. If you still retain your full loan entitlement, there are no loan limits. However, if you haven't restored the portion of your entitlement used for your current home purchase, you'll be subject to the 2024 loan limits set by the Federal Housing Finance Agency. Similarly, if you have a history of defaulting on a VA home loan, you'll be bound by the current VA loan limits.
Typically, borrowers can secure loans of up to four times their entitlement amount. When utilizing both the basic and bonus entitlements, the loan limit stands at $484,350, though this figure may be higher in certain cases. However, loan limits and entitlements could be greater in high-cost regions. To ascertain the maximum loan amount for a VA loan, borrowers should consult the loan limit applicable to the county of purchase, taking into account these factors.
Furthermore, the Blue Water Navy Vietnam Veterans Act of 2019 has introduced changes to VA home loans effective January 1, 2020. Under this Act, eligible veterans can now purchase homes valued at up to $1,500,000 with no down payment. For all qualifying VA home loan applications moving forward, the following criteria apply: a maximum loan amount of $3,000,000, a minimum FICO score of 700 for loan amounts exceeding $1,000,000, a full 25% guarantee from entitlement required, and manual underwriting not permitted for loan amounts surpassing FHFA conforming limits.
VA Jumbo Loans
When a VA loan surpasses the loan limit specified for a particular county, it is termed as a VA jumbo loan. Opting for a VA jumbo loan allows you to purchase homes located in high-cost areas, expanding your housing options to include properties near major cities or large metropolitan regions.
Although a VA jumbo loan provides greater flexibility in budgeting, it typically comes with stricter requirements compared to standard VA loans. Borrowers are required to demonstrate to the lender their ability to repay a higher loan amount, resulting in more stringent income, credit score, and debt-to-income ratio (DTI) criteria.
At Fyzl Group, we facilitate VA jumbo loan amounts of up to $3,000,000. Contact us today to determine your eligibility for a VA jumbo loan and explore the competitive VA home loan rates available to you.
What is a Certificate of Eligibility for a VA Loan?
What is a Certificate of Eligibility (COE) for a VA loan?
The Certificate of Eligibility, issued by the VA, confirms that a borrower meets the minimum service requirements necessary to qualify for a VA home loan. This document is essential, as without it, you cannot be considered eligible for a VA loan. Lenders rely on the COE to ensure that you meet the VA's criteria and that the VA will guarantee a portion of the loan.
Additionally, the COE provides the lender with information regarding the remaining amount of your entitlement. While there is no restriction on the number of times you can use a VA loan, having partial entitlement may necessitate a down payment.
You can obtain your COE through various methods, including the VA's eBenefits portal, by mailing a request form, or by working directly with your lender, who can assist in the process. When applying for your COE, you'll typically need to provide documentation such as your discharge or separation proof (form DD-214), or a statement of service signed by your commander, adjutant, or personnel officer (applicable for active service members only).
Pros and Cons
Considering any home financing option involves weighing its advantages and disadvantages. Here, we outline key benefits and drawbacks to consider before opting for a VA loan.
Pros of VA loans:
- No down payment required
- Lower interest rates compared to traditional financing
- Backed by the Department of Veterans Affairs
- No need for private mortgage insurance
- More flexible loan requirements
- Limited closing costs
- No penalty fee for early loan repayment
- Ability to sell or refinance without restrictions
- Applicable to various property types including homes, condos, and duplexes
- Funding fee can be financed with the loan or waived in some cases
- Assumable, allowing transfer to a VA-eligible buyer
- Option to include a non-spouse family member for joint loans
- Opportunity to cash out up to 100% of the home's value
Cons of VA loans:
- Service requirements must be met to qualify
- VA funding fee is required
- Occupancy requirements must be adhered to
- Generally not usable for investment properties
- Inability to waive a VA home inspection or appraisal
Despite the cons, VA loans often prove advantageous for most borrowers. With no monthly mortgage insurance and favorable terms, they offer affordability, enabling borrowers with low income to focus on debt repayment and other financial obligations while purchasing a home.
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