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The 10 Best VA Loan Tips You Need to Know
By Joan Pabón MONEY RESEARCH COLLECTIVE
Whether you’re a veteran, an active duty service member or a surviving spouse, you may be entitled to certain benefits offered by the U.S. Department of Veterans Affairs. Among them are VA loans, which feature such welcome perks as competitive interest rates, low closing costs, and no down payment or mortgage insurance requirements.
But while the process to obtain a VA home loan can be much like that of any other type of mortgage, there are some key differences you should be aware of. With that in mind, we’ve compiled some of the most useful VA loan tips to help you make the best of your VA home loan benefit.
Table of contents
- A COE document isn’t needed to start the VA loan process
- The VA loan benefit never expires
- Surviving spouses can buy a home
- A good credit score is required
- You’ll need a preapproval letter
- VA loan benefits can be used for more than just buying a home
- A VA loan can help you avoid foreclosure
- A residual income threshold must be met
- An appraisal is required before getting a VA loan
- You must meet the VA’s minimum occupancy requirements
- VA loan FAQ
- Summary of our VA loan tips
1. A COE document isn’t needed to start the VA loan process
Issued by the U.S. Department of Veterans Affairs, your Certificate of Eligibility (COE) confirms to your lender that you meet the military service requirements needed to qualify for the VA home loan benefit. But you don’t need a COE to get pre-approved for a VA loan and start shopping for rates. Typically, lenders won’t require this document until the loan process is underway.
To get your COE on your own, go to the eBenefits website or obtain VA Form 26-1880 from VA.gov, complete it and send it over postal mail to the address indicated in the form.
However, most lenders can obtain the COE on your behalf with little effort on their part. While it could take up to five days, most VA loan lenders are able to procure the COE almost immediately through an online system.
Of course, reading through the minimum service requirements even before getting pre-approved can save you time and potential headaches. (By the way, you may still qualify if you don’t meet the stipulated requirements; exceptions are made if you were discharged due to hardship, certain medical conditions, and disabilities connected to your military service, among others.)
2. The VA loan benefit never expires
Once the Veterans Administration deems you eligible for a VA loan benefit, you remain so indefinitely. Even if you served several decades ago, you could still purchase a home through a VA loan if your eligibility can be established – and that will depend on when and how long you served.
To check whether you are eligible for the VA loan benefit, you’ll need to access your military service record, specifically DD Form 214. You may request this form through the milConnect website and present it to your lender. With that document, your lender will be able to request a COE on your behalf.
If you have already used your VA home loan benefit, you may even be able to use it again. One way to reestablish your full entitlement is to pay off your VA loan and sell the home you purchased with it. Eligible military members and veterans who paid off their loans years before may still receive a one-time restoration of entitlement, even if they’ve kept the home. To qualify, they must refinance their VA loan to another type of mortgage.
3. Surviving spouses can buy a home
Surviving military spouses whose partners died in the line of duty or due to a service-related disability may be eligible for a VA loan. To be eligible for a COE as the surviving spouse of a fallen service member or veteran, one of the following must apply:
- The veteran has been declared missing in action or is a prisoner of war
- The veteran died during their service or from a service-related disability, and you (as their spouse) did not remarry
- The veteran died during their service or from a service-related disability, and you (as their spouse) did not remarry before the age of 57 or before December 16 of 2003
- The veteran was totally disabled before their death
Spouses who have since remarried may still qualify if they remarried after their 57th birthday or after December 16, 2003.
4. A good credit score is required
One advantage to a VA loan is that you can get a low interest rate without excellent credit. But while the VA doesn’t set a minimum credit score requirement, lenders can set their own. And, as with conventional mortgage loans, your credit score will have a bearing on the interest rate you’re offered.
As a rule, higher credit scores mean greater savings for borrowers. A FICO credit score of 670 or above — coupled with the low rates associated with VA loans — can help borrowers get the most affordable monthly mortgage payment possible and make the most out of their VA loan entitlement.
That said, having less-than-stellar credit doesn’t mean you won’t qualify for a VA loan or receive a lower-than-average rate. VA lenders look at your finances as a whole, including how much you earn versus what you owe (i.e. your debt-to-income ratio) and how much disposable income you have after paying taxes and other obligations.
Nevertheless, it’s always a good idea to check your credit score before applying for any type of financing, particularly a mortgage. Financial experts recommend going through your credit reports from all three major credit bureaus and disputing any incorrect or old negative credit items that may be weighing down your score. To get a copy of all three of your credit reports, visit AnnualCreditReport.com. Many credit card companies allow you to access your credit score for free.
5. You’ll need a preapproval letter
Unlike prequalification, which is simply an estimate of how much you could borrow, preapproval provides you with a concrete loan offer (not a guarantee) from the bank or lender. In housing markets where inventory is low and demand is high, getting pre-approved can signal to sellers that you’re a serious buyer and give you a competitive advantage over other buyers. And if you find your dream home and are ready to make an offer, most real estate agents will require a preapproval letter before you can do so.
The process entails a hard credit inquiry being made on your behalf. To get pre-approved for a VA loan, you’ll also need to provide proof of income and assets and your military service. The following are some (but not all) of the documents you’ll need to present:
- Pay stubs or W2 statements for the last two years
- Tax returns for the last two years
- Recent bank and retirement account statements
- An official identification, such as a driver’s license or passport
- A copy of DD form 214
- A statement of service verifying your current or past military employment
6. VA loan benefits can be used for more than just buying a home
Let’s say you already have a VA home loan and are looking to reduce your monthly mortgage payment or to switch from an adjustable-rate loan to a fixed-rate one. You should consider getting an interest rate reduction refinance loan (IRRRL).
To be eligible for an IRRRL, borrowers must prove that they live or used to live in the home the loan is covering. However, this option is only available to those with a current VA loan.
Another refinance option available to servicemembers is cash-out refinancing. With a cash-out refinance loan, you essentially replace your existing loan with a larger loan amount. This option is available to qualifying borrowers — regardless of the type of home loan they currently have — and allows them to pull cash out from their home equity and use it for any purpose.
Before signing on for either option, homeowners should crunch the numbers and see how much they will save after paying closing costs. Some lenders may also offer the option of rolling closing costs into the loan amount, thereby increasing the monthly mortgage payment.
7. A VA loan can help you avoid foreclosure
Foreclosure, the process that takes place when you cannot pay your mortgage and your lender must seize your home to recoup losses, is a real possibility with any type of mortgage.
Nevertheless, the VA offers some assistance to borrowers who are having difficulty meeting their monthly mortgage obligations.
According to the U.S. Department of Veterans Affairs, the following are options available to VA borrowers wanting to avoid foreclosure:
- A repayment plan – If you missed any monthly mortgage payments, a repayment plan can help you catch up by paying extra each month.
- Special forbearance – Allows borrowers to temporarily stop making monthly payments and repay missed amounts.
- A loan modification – By modifying your loan, you are able to fold missed mortgage payments and other costs into the loan balance and start fresh with a new payment schedule.
- Additional time to sell the home – If all else fails and you opt to sell the home yourself (a private sale), this option can give you extra time to make those arrangements while avoiding foreclosure.
- A short sale – If you have an underwater mortgage, meaning you owe more than what the home is currently worth, your lender might agree to a short sale. Short sales are when the lender agrees to accept the proceeds of the home sale regardless of whether that amount covers the outstanding mortgage balance. Short sales should be a last resort, as they could hinder your ability to use the VA home loan benefit in the future.
- A deed in lieu of foreclosure – This option allows you to forfeit your home by signing over the deed to the lender, thereby avoiding foreclosure and the possibility of being liable for any outstanding mortgage balance.
If your home is foreclosed on and the VA has to repay your loan, you might be required to refund the VA for the full amount if you closed on your loan prior to January 1, 1990. Borrowers who closed after that date would have to repay the VA if there is evidence that they were dishonest, misrepresented facts or committed fraud.
If you are struggling to keep up with monthly mortgage payments, contact your mortgage lender or loan servicer to review your options. VA loan borrowers may also qualify for free financial counseling and assistance dealing with loan servicers. Contact your local VA Loan Guaranty office at (877) 827-3702 and ask about this option.
8. A residual income threshold must be met
The VA sets residual income requirements that vary by region, loan amount and family size. Residual income refers to a borrower’s discretionary income, meaning the money left over each month after paying financial obligations, including mortgage payments, household expenses, debts, etc. The purpose behind these requirements is to ensure borrowers have enough money to cover their loan payments and living expenses.
According to the U.S. Department of Veterans Affairs, residual income requirements are as follows.
Loan amounts of $79,999 and below
For families of over five members, you would add $75 for each additional person, up to seven per family unit.
Northeast
- Family of one: $390
- Family of two: $654
- Family of three: $788
- Family of four: $888
- Family of five: $921
Midwest & Southwest
- Family of one: $382
- Family of two: $641
- Family of three: $772
- Family of four: $868
- Family of five: $902
West
- Family of one: $425
- Family of two: $713
- Family of three: $859
- Family of four: $967
- Family of five: $1,004
Loan amounts of $80,000 and over
For loan amounts of $80,000 and above, $80 per person is added for each additional family member beyond five, up to seven.
Northeast
- Family of one: $450
- Family of two: $755
- Family of three: $909
- Family of four: $1,025
- Family of five: $1,062
Midwest & Southwest
- Family of one: $441
- Family of two: $738
- Family of three: $889
- Family of four: $1,003
- Family of five: $1,039
West
- Family of one: $491
- Family of two: $823
- Family of three: $990
- Family of four: $1,117
- Family of five: $1,158
9. A appraisal is required before getting a VA loan
All VA purchase loans require an appraisal — which is not the case with interest rate reduction refinance loans (IRRRL). Appraisals entail an inspection by a professional who will verify the property’s fair market value, taking into account any visible defects or problems. The value of comparable homes in the area is taken into account in the assessment. Appraisal costs vary depending on the size of the home but could range between $300 and $500 for a single-family property.
Appraisals shouldn’t be confused with home inspections, which are not required by the VA and generally entail an in-depth assessment of the condition of the home. While appraisers will look at the property’s overall condition, home inspectors will look more closely at potential issues. Despite not being required, inspections can save homeowners a considerable amount of money, especially if the home is older or has been vacant for an extended period.
10. You must meet the VA’s minimum occupancy requirements
Borrowers must meet certain occupancy requirements to qualify for a VA loan. Some lenders may be more lenient than others, allowing for exceptions under certain conditions. Still, as a rule, borrowers must generally satisfy the following:
- Use the loan to purchase a primary residence and occupy it within 60 days after closing. Investment properties or vacation homes are not eligible.
- If the home is in need of repairs or improvements to satisfy minimum property requirements, the borrower must certify that they plan to occupy the property once repairs are completed.
- If the borrower is often required to travel overseas due to their job, they must be able to confirm that they have a history of residing in the area and plan to spend a considerable amount of time at home.
- The spouse may satisfy the occupancy requirement if the borrower is on active duty.
- If the borrower is close to retirement, they must provide evidence that they have applied for retirement and can afford the mortgage payments. In some cases, they may obtain additional time to meet the requirement (up to 12 months).
You have the option of renting out the home once you have occupied it for 12 months. You may be able to rent out your home sooner if you have received a permanent change of station (PCS) and must relocate or qualify for an IRRRL.
VA loan FAQs
Why are VA loans appealing for first-time homebuyers?
VA loans offer great benefits for first-time homebuyers, including their lack of closing costs (aside from the VA funding fee), competitive mortgage rates, and the absence of down payment or private mortgage insurance requirements. To qualify for a VA loan, you must meet minimum service requirements and obtain a Certificate of Eligibility (COE).
You can request your COE from eBenefits.va.gov. Alternatively, a VA-approved lender may be able to procure a COE on your behalf.
Is it difficult to get a VA loan?
Getting a VA mortgage can be a straightforward process if you meet the minimum service requirements. As with conventional loans, you must provide your lender with certain documents verifying your eligibility, income and employment. Gathering those documents can be the most challenging part of the home-buying process.
Can you only use a VA loan once?
If you've already taken out a VA loan, you can restore your full entitlement by paying off your loan in full and then selling the home you purchased with it. Eligible borrowers who paid off their loans may still receive a one-time restoration, even if they've kept the home, by refinancing their VA loan to another type of mortgage.
Summary of our VA loan tips
If you’re a veteran, current military, national guard or reserve member, a VA loan can make your dream of homeownership a reality. While they have some limitations regarding property usage and occupancy, their low rates and flexible credit requirements make them an excellent option for first-time homebuyers who may not have stellar credit or enough funds for a down payment.
Joan is a professional translator, writer and editor with a special interest in personal finance and insurance topics. She has been a contributing author and independent researcher at ConsumersAdvocate.org since 2017 and an editor at Money since 2019. Her work has been featured in MSN Money and Apple News.