The U.S. Department of Veterans Affairs (VA) has the best loan program in the country, and for good reason. VA loans are specifically created for veterans as a token of gratitude for their service. 

 

Let’s break down what exactly a veteran is for qualification purposes. A veteran is typically defined as someone who has served in the armed forces and completed their service. However, active duty service members, spouses, and those in the Reserves or National Guard are included. Veterans from various branches of the military, including the Army, Navy, Air Force, Marine Corps, and Coast Guard can all be eligible to qualify for a VA loan.

 

What makes this the best loan program in the country? The VA requires no down payment, no mortgage insurance offers lower interest rates, and borrowers need a minimal credit score to qualify. To see if this could be a loan for you, prepare to explore VA loans in more depth–how they work, eligibility requirements, benefits, the loan process, and much more. 

 

1. What is a VA Loan? 

A VA loan is a loan guaranteed or backed by the Veterans Affairs for the service men and women of the United States Armed Forces and their families. The loans are broken down into two parts, VA direct home loans and VA-backed loans. 

 

VA direct home loans are serviced by the VA, and you will work directly with the VA to apply for your loan. The Native American Direct Loan (NADL) falls under this category. 

 

The most common are VA-backed loans. The VA does not lend these loans themselves but guarantees a portion of the loan to a lender or a bank. The guarantee from the VA protects the lender in case of default, and in turn, lenders can give lower interest rates and no down payment for purchases, builds, or refinances. 

 

 

2. Eligibility Requirements 

COE

Active duty, reserve members, national guard, and spouses of military personnel all qualify for a VA Direct or VA-backed loan. Eligibility also extends to un-remarried surviving spouses, as well as spouses of service members who are missing in action or prisoners of war. The VA also extends disability Housing Grants and has other specific Surviving Spouse programs. All these borrowers, if they are buying a VA-backed loan, still need to meet the lender’s credit and income requirements to get a loan. 

 

Once it’s confirmed an individual falls into one of those categories, the borrower has to possess a valid Certificate of Eligibility (COE). This is a document providing information on the service member’s minimum service history, current duty status, and what kind of discharge the borrower has. 

 

Full Entitlement

On your COE you will find a line talking about full entitlement. This is not the amount you are able to borrow, but the minimum amount that is guaranteed by the VA-backed home loan if the loan goes under default. The VA guarantees 25% of $144,00 for basic entitlement, and 25% of the total loan amount per county loan limits if the borrower wants to use their Bonus or Tier 2 Entitlement. 

 

For example, Lisa is looking at her approved COE and wants to buy a home in Maricopa County (Phoenix, Arizona). On her COE, there is a line stating “This Veteran’s basic Entitlement is $36,000”. If Lisa’s loan amount is under $144,000, she is using her basic entitlement. But, if Lisa wants to buy a home with a loan amount that is over $144,000 but under $766,550 (Maricopa County loan limit), the VA backs the lender up to 25% of that amount, and Lisa would be using Bonus or Tier 2 Entitlement. 

 

A veteran can restore Entitlement, but they need to sell the home pay the loan in full, and use the entitlement on a new home (remember, no investment properties). Or, they can find a VA borrower to assume the loan. 

 

 

3. Fees Important to Note

 

Fees

There are many benefits to these loan terms, but keep reading so you don’t miss some important caveats.  VA loans have no down payment requirements; however, the VA does require something called a Funding Fee.  A funding Fee is a one-time payment of the percentage of the loan amount. This fee is required because it helps lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn't require other fees like down payments or insurance. This fee can be included in your closing costs but is often financed into the total amount borrowed. 

 

The Fee is usually determined by what kind of loan the borrower gets and the total amount of the loan. The fee is also based on whether it's the borrower's first or subsequent time using their Entitlement, and the amount they choose to put down. For more information, check out the chart here.

Several groups are exempted from the VA funding fee: Disabled veterans, surviving spouses, and Purple Heart recipients serving in an active duty capacity. To qualify for this exemption, you have to be receiving some form of disability benefits. 

Please remember that while our veterans get many perks from home programs, lenders still charge interest on the loan in addition to closing fees. Please be sure to talk to your lender about any closing costs that show up on your Loan Estimate (LE) or Closing Disclosure (CD). 

 

Closing Costs

All loans, including VA Loans, have closing costs. When you are borrowing a VA loan product, or any loan product for that matter, expect to pay:

- Recording fees

- Prepaid items

- Title Fees

- Origination and underwriting fees (never at X2 Mortgage)

- Appraisal Fees

- Credit Report Fees

- Other Fees Authorized by the VA

We don't want closing costs to be a surprise to any borrower. Usually closing costs range from 2-4% of the loan's value, but it always depends on the situation. The VA allows 4% seller concession limits to help borrowers save money. Seller Concessions are when the seller can put money towards closing costs, and in the VA program, concessions can be contributed by sellers to help with discount points, buy-down programs, or even towards paying off debt to help a borrower qualify for a loan.  

 

 

Keeping Vets in Homes

To keep vets in homes, VA loans also offer very competitive interest rates, which makes monthly payments more affordable. To make things even more affordable, lenders are also flexible on credit score requirements. There is no solid minimum credit score requirement from the VA, as it varies from lender to lender. Expect most lenders to require a 620 FICO, but X2 Mortgage allows for credit to go as low as 500! 

 

When qualifying for a borrower, X2 Mortgage considers the whole picture, and will also gather information and calculate what is known as a debt-to-income ratio. This is determined to assess if the borrower can make the monthly payment, or if they have too much debt, they assess if the borrower will be at risk of foreclosure. VA doesn't have set DTI limits either, but usually, lenders set a high DTI of 55%. 

 

Post-closing, Vets offer programs to help borrowers at risk for foreclosure and other mortgage refinance scams. As of the date this was written, VA is currently pausing foreclosures through December 31, 2024. They also have a VASP program, which is when the VA buys the loan and helps the borrower deter foreclosure after the borrower has exhausted all other ways to stay in their homes. 

 

 

 

4. Types of VA Loans 

VA borrowers can not only purchase a VA direct or backed loan for buying a primary residence but have some great refinance options as well. 

 

Cash-Out refinance loans help get cash out while refinancing into a possible better rate, which can be used for other investments or reconsolidating debt. 

 

Interest rate reduction refinances loan, is when you can refinance your VA-backed current loan and replace it with a new one with different terms. It's considered a streamlined loan, which means a fast process, and you can usually acquire lower interest rates and even move from an adjustable rate to a fixed rate. They do not require an appraisal. 

 

Also under the VA umbrella is something called a Native American Direct Loan (NADL) program. This program is for our Native American communities to get into a home on federal trust land. This loan comes with no down payment and little closing costs, with interest rates starting at 2.5%. 

 

5. Property Requirements 

No matter what loan program you have, you must use your eligibility to live on the property as your primary residence. No vacation or investment properties are allowed with VA benefits.

 

Property

A potential challenge in the VA loan process is securing a property that meets VA standards. The VA is very strict about appraisals and inspections, as they only want to guarantee collateral that is of good quality. When a VA appraisal is completed, a special underwriting committee will also look at it. Then, the lender’s underwriter will issue a Notice of Value (NOV) or Certificate of Reasonable Value (CRV). The NOV must be sent in with the appraisal report to proceed with underwriting. 

 

 

 6. The VA Loan Application Process 

Now that you know how to be eligible for a VA loan, and the different types and costs associated with it, let’s go step by step on how to apply and get your home. 

 

Find a Lender

No matter what loan you want, it's always good to start by finding a lender–even better, a broker! Brokers can shop around banks and mortgage companies who offer them. 

 

Complete eligibility paperwork

You can obtain your COE here or call your lender to help you find out what you are eligible for, and be ready to give this to your loan officer. 

 

Get pre-qualified

This is a very important step in the process–how do you know what to shop for if you don’t know what you can pay? Getting prequalified in Arizona means you call a loan officer and let them know your goals and your financial situation. Before you call, be ready to have your COE information and any other financial details, like your credit score, list of monthly debt payments, work information, and other assets you have. 

 

Find what you want

Having a reputable real estate agent can be a game-changer. Find a well-versed agent that is familiar with VA loans to help you find the right home– in the right place– depending on your needs and situation. There are special listings and websites by the VA to help veterans who have been in foreclosure to sell those homes. 

 

Sign a contract

It’s time to make an offer on the home you choose. Creating a contract with both your loan officer and your realtor behind you will help you gain the best purchase price, max seller concessions, and other VA benefits in mind. 

 

Hang tight while the loan is in processing

Nobody likes to work harder than they have to, and at X2 Mortgage, we try to make it easy by getting a lot of documentation up front. We will analyze your credit, assets, and debts while your appraisal goes through and make sure you are updated every step of the way.  

 

 

Close on your dream home!

Cleared to close! You sign your final docs after the property is cleared and the final documentation is signed. It's finally time for you to get your keys to your new home. 

 

 

 

 

 

VA Loan Takeaway

VA loans are a unique and advantageous mortgage option designed to honor military service families while providing accessible home financing. To sum it up, the most compelling feature of VA loans is that they allow veteran borrowers to become homeowners while saving a lot of money. VA loans and refinances require no down payment, eliminating a significant barrier for many buyers.

 

This program is inclusive to various veteran backgrounds with a Certificate of Eligibility (COE), verifying their military service. With the VA guaranteeing the loan, lenders like X2 can offer lower interest rates and more favorable terms, such as low minimal credit score requirements and no mortgage insurance. When it comes to fees, X2 Mortgage does not charge origination or processing fees, and VA borrowers only have to worry about the funding fee and closing costs.  

 

With various loan options available—including cash-out refinances and Interest Rate Reduction Refinance Loans (IRRRL)—veterans can tailor their mortgage experience to meet their financial needs and specific situations year after year. Overall, VA loans represent a vital resource for veterans seeking homeownership, combining affordability with supportive lending practices. Thank you for your service, and feel free to reach out today to speak with a qualified loan officer about your home ownership dreams.