VA Home Loans: Q & A
The VA home loan benefit is one of the most popular military benefits you can use. The GI Bill and VA disability benefits may compete for the most commonly used, but VA home loans are likely the best-known (and least understood) of the three.
VA home loans are available for those who have served enough qualifying time as a full-time active duty military member, a member of the National Guard or Reserve, and certain members of the Public Health Service and the National Oceanic and Atmospheric Administration.
Q & A: VA Loans
Each one of these categories may have its own unique time-in-service requirements and serving in the Guard or Reserve may require minimum full-time active duty service time that is not part of training.
In addition to the active-duty requirement for members of the Guard and Reserve, these applicants generally must have served six years minimum as Reservists or Guard members.
What do you need to know about VA home loans to get started? The most basic level of information you’ll need as a new VA borrower is connected to your eligibility for the loan program, which is only possible after serving a minimum amount of time in uniform.
How Long Do I Have to Serve on Active Duty to Qualify for a VA Home Loan?
The question above assumes you automatically qualify for a VA mortgage once you have served enough time. That is not true. You qualify to APPLY for a VA home loan once you have served the minimum; your loan approval will depend on:
- Your FICO scores
- Employment history
- Other typical home loan-qualifying financials
How long do you have to serve to become eligible to apply? That will vary depending on when you joined and the nature of your military service. In general, those on active duty today must serve 90 consecutive days of active military duty to become eligible.
Once you do become eligible, your VA loan benefits are NOT automatic, you will need to apply for a VA Certificate of Eligibility in order to start the VA home loan process. Not sure how to do that? You can get the help of a participating VA loan officer to get the paperwork started, or you can use the VA online portal eBenefits to do it yourself.
What Is the Minimum FICO Score for VA Loan Approval?
Unlike other government-backed mortgages such as FHA home loans, VA mortgages have no VA-specified FICO score minimums. That is left up to the lender to determine and you’ll want to shop around for a VA lender who can work with your circumstances. Home loans in general may require FICO scores in the mid-600s for the most competitive rates and terms.
Does the VA Set Interest Rates on VA Mortgages?
No. The Department of Veterans Affairs does not set or regulate interest rates on VA loans, except to generally require that rates for these mortgages are “reasonable and customary” compared to similar home loans from the FHA, USDA, conventional mortgages, etc. from the same lender in the same housing market.
Can I Buy a Second Home with a VA Mortgage?
There is no rule saying you cannot own other property when you apply for a VA loan but there IS a rule saying you must intend to occupy the home purchased with a VA mortgage as your primary residence. You will certify this in writing in a legally binding document.
Can I Buy an Investment Property with a VA Home Loan?
If by “investment property” you mean, “a home I don’t intend to live in personally”, the answer is no, this is not permitted.
Is It Possible to Rent Out the Unused Living Units In the Home I Currently Live In?
VA loan rules permit you to rent out any unused units in the home you bought with a VA mortgage. As long as you occupy the home while paying on your VA purchase loan, you won’t be in violation of the VA loan occupancy requirements found in VA Pamphlet 26-7, the VA Lender’s Handbook.
Is It Possible to Buy A Farm Home with a VA Mortgage?
It’s possible to buy a farm home, but not a farming business with a VA mortgage. You’ll learn that the VA appraisal process for these properties only counts the residential value of the property and does not take into account any commercial use, outbuildings, equipment, or other farm business items. In short, the VA loan is for you to purchase a home and you cannot buy a business with one.
Can I Borrow More Than I Need for the Home and Take the Excess Cash at Closing Time?
No. VA loans, like most home loans, don’t allow you to apply for more home loan than is required to purchase the property, pay any included closing costs, etc. The only cash back to the borrower at closing time for VA purchase loans is generally restricted to refunds.
You may find a limit of $500 back at closing time is typical but this may vary due to state law, lender standards, or other issues. VA home loans are strict about the no-cash-out purchase loan rules, it’s smart to know your responsibilities and your rights before you apply.
Will All Of My Income Qualify For The Loan?
Not all the money you earn is countable for the purpose of approving your mortgage. It’s true your loan officer’s job is to make sure you can reasonably afford the loan but there are requirements for your income to be countable for that purpose. One of them is that the income must be likely to continue, and another is that the income must be stable and reliable.
That may rule out side hustle-type income such as selling items on eBay or Etsy, and it definitely will not include housing stipends from the GI Bill since these too have a built-in expiration and will not continue.
Active duty military housing allowances, on the other hand, do count toward your income for loan approval purposes.
How Much Can I Borrow with a VA Mortgage?
Now more than ever, this is an issue you may need to negotiate with your loan officer. That’s partly because those with 100% of their VA home loan entitlement are eligible to apply for a VA mortgage with no VA loan limit imposed. This is a change from the previous VA home loan policy which did observe a per-county VA loan limit.
This “no loan limit” option is not available to all VA loan applicants–only those who have 100% VA loan entitlement to use for the transaction. Those with less than 100% VA loan entitlement must observe VA loan limits by county like any other government-backed mortgage program.
Can My Spouse or Children Use My VA Home Loan Benefit?
Those who qualify for a VA home loan can apply with a spouse. The spouse alone cannot apply unless they are a surviving spouse of a military member who died as a result of military service. The same rules generally apply for refinance loans through a VA Streamline Refinance may be possible for a surviving spouse if they were part of a VA purchase loan prior to the service member’s death.
Surviving spouses have different application procedures than other applicants. It may be helpful to contact the VA directly or discuss your circumstances with a participating VA lender to learn what your current options are and how to prepare to apply.
Before talking to a lender or representative, it may be a good idea to gather all documents you are likely to need, including the servicemember’s proof of service, report of discharge, service records, death certificate, and any other documentation to establish an identity for the purpose of applying for a VA Certificate of Eligibility.
About the author
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.