The United States Department of Veterans Affairs (VA) created a mortgage loan that provides financial assistance to veterans. This mortgage is guaranteed by the VA. A VA home loan is a mortgage loan that is issued by private lenders and partially backed by the federal government. The VA was designed to help provide housing and assistance for veterans and their families by issuing easier financial qualifications. For example, if eligible, applicants are not required to make a down payment, and will not get penalized with private mortgage insurance (PMI).
Here are some characteristics and benefits:
- Credit Score – Most cases, you will need a credit score of at least 620 to qualify for an VA loan.
- Down Payment – Zero down payment
- Mortgage Insurance – VA loans don’t have mortgage insurance, but borrowers may pay a funding fee, which is charged as a certain percentage of the loan amount and either paid at closing or rolled into the loan amount.
- Funding Fee – This fee is a one-time charge that can be paid upfront or rolled into the mortgage, whether you are doing a VA home purchase or a VA refinance. VA loans are backed by the Department of Veterans Affairs, which repays the lender a portion of the loan if the borrower defaults. The funding fee helps defray the costs of that VA guarantee.
- The amount of the funding fee is based on how much you are putting down and if you have ever had a VA-backed loan before. (If you have ever had a VA-backed loan before, a new loan is called “subsequent use.”)
- VA Purchase or Construction Loan – Fees for a first VA purchase loan or construction loan are 2.15% of the purchase price with a down payment less than 5%, 1.5% of the purchase price with a down payment of 5% to 9.9% and 1.25% of the purchase price with a down payment of 10% or more.
- Subsequent VA Loan – Funding fees for a subsequent VA loan are 3.3% with a down payment less than 5%, 1.5% with a down payment of 5% to 9.9% and 1.25% with a down payment of 10% or more.
- VA Cash-Out Refinance – The funding fees for a VA cash-out refinance loan are 2.15% for the first use and 3.3% for any subsequent use.
- VA IRRRL – The fee for an Interest Rate Reduction Refinance Loan, or VA IRRRL loan, is 0.5% for first-time and subsequent use.
- The amount of the funding fee is based on how much you are putting down and if you have ever had a VA-backed loan before. (If you have ever had a VA-backed loan before, a new loan is called “subsequent use.”)
Debt to Income Ratio (DTI) – Your debt-to-income ratio (DTI) is a percentage that represents how much of your monthly income goes to pay off debts. You can calculate your DTI by adding up the minimum monthly payments on all your debts (i.e., auto loans, credit cards, installment loans, etc.) and dividing it by your gross monthly income.