A VA loan is one of the top military benefits available to veterans, service members, and surviving spouses. Even with imperfect credit, you can qualify for a low-cost mortgage when buying or refinancing .

If you are currently serving in the military or are a veteran, you may be eligible for a VA loan. The purpose of this article is to provide you with all the information you need about these special government-backed loans, including their rates, qualification requirements, and benefits. The VA loan program comes with additional benefits for disabled veterans, so be sure to read on.

What is a VA loan in real estate?

In addition to being a government loan, a VA loan is backed by the Department of Veterans Affairs (VA). A specific guarantee is offered by the VA to private lenders who handle VA loans. Lenders usually offer veterans no-down-payment loans based on these guarantees, and their eligibility requirements may be less stringent.

Most common types of VA loans

VA loans may be used to purchase a home or refinance an existing one. For more information about which VA loan type would work best for your situation, it is necessary to consult a home loan expert.

• VA Home Purchase Loan - This is a standard mortgage backed by the VA.
• VA Jumbo Loan - This is a VA loan that exceeds the maximum conforming loan amount.
• VA Renovation Loan - This type of loan funds both the cost of renovation and the purchase price of the home.
• VA Cash-Out Refinance - This is a type of loan where the equity in the home is converted into cash.
• VA Rate/Term Refinance - The refinance option allows clients who do not already have a VA loan to lower their interest rate or change the term of their loan.
• VA Interest Rate Reduction Refinance Loan (IRRRL)  - This refinance is similar to a rate/term refinance, except that you already have a VA loan. It is intended to reduce the interest rate or monthly payment. The VA funding fee is lower, and there is less documentation required. You may also hear this referred to as VA Streamline.

What is the VA loan process?

Despite not issuing VA loans themselves, the VA does determine which lenders qualify for them. The VA offers several types of loans that are less risky for lenders since they are backed by the government.

In contrast to conventional lenders, VA mortgages do not meet the guidelines of Fannie Mae and Freddie Mac. The lower credit score requirements, however, allow clients to qualify more easily. They offer many benefits over conventional loans, such as lower interest rates and less stringent borrowing requirements. Additionally, VA loans are not subject to monthly mortgage insurance.

Eligibility requirements for VA loans

Survivors of military service members, active duty, and veteran military personnel are eligible for VA loans, which are backed by the Department of Veterans Affairs. A VA loan is suitable for you if you meet the following criteria:

1. You have served 90 continuous days on active duty.
2. Generally, wartime veterans must serve 90 days, and peacetime veterans must serve 181 days.
3. A total of 90 days of active duty or six creditable years of service in the Selected Reserve or National Guard is required.
4. If you have not remarried and are the surviving spouse of a veteran who died in service or suffered a service-connected disability, then you qualify. Alternatively, you remarried after age 57 or Dec. 16, 2003. Additionally, service members' spouses who are missing in action or prisoners of war may apply.
5. When you are discharged due to a service-connected disability, you may still qualify even if you do not meet the length-of-service requirements. For more information, contact the VA.
6. The VA will consider upgrading your discharge status if you received an "other than honorable" discharge, bad conduct discharge, or dishonorable discharge.

VA loan application process

A VA loan can be obtained through a bank, mortgage company, or credit union that offers them. Applying for a mortgage is similar to applying for other types of loans - you need to provide employment, income, and other financial information, and the lender determines if you qualify.

The VA certificate of eligibility is one of the unique items you'll need. Certificates of eligibility are documents issued by the Department of Veterans Affairs that demonstrate that you meet the service requirements for a VA loan. It is possible to request the certificate of eligibility directly from the VA or ask your VA mortgage lender to do it for you.

Certificate of Eligibility (COE)

The COE identifies your eligibility for a VA home loan to your mortgage lender. A COE needs to be accompanied by proof of service. A VA loan requires different proof depending on whether you qualify as an active-duty military member, veteran, surviving spouse, or otherwise.

Documents Needed

For mortgage qualifying, you'll need to submit several different forms depending on your situation.

For Veterans

Veterans must submit the DD Form 214. You can get a DD Form 214 to verify your military discharge. The eVetRecs filing system allows you to request your DD Form 214 online.

For Active-Duty Service Members

If you're an active-duty service member, you'll need a statement of service signed by your personnel office or an adjunct or unit commander. You must include your full legal name, Social Security number, and birthdate on your statement of service.

The document must contain your date of entry into the service, information on any breaks or discharges, and the commander who provided the information. Obtain a statement of service from your superior before applying for your certificate of employment.

For Current Or Former Activated National Guard Member

It is also necessary for current National Guard members to provide a copy of their DD214.

You'll need one of the following if you've served at least 90 days:

• A copy of your DD214 showing the activation of 32 USC sections 316, 502, 503, 504, or 505
• An annual point statement
• DD220 with the corresponding orders

For Current Member Of The National Guard Or Reserve Who Hasn’t Been Activated

You'll need your commanding officer's signature on your statement of service. They are the same as those for active-duty service members.

For Discharged Member Of The National Guard Who Wasn’t Activated

Members who have been discharged from the National Guard nee d to keep NGB Form 22, Report of Separation, and Record of Service for each period of National Guard service. You also need to provide NGB Form 23, Retirement Points Accounting, and proof of character of service.

As National Guard units are state-based, there is no central record archive. The National Guard Adjutant General's Office in the state where you served will issue your COE once you provide your NGB Forms 22 and 23.

For Discharged Member Of The Selected Reserve Who Wasn’t Activated

If you are a discharged member of the Selected Reserve, you must have a copy of your annual Retirement Points Statement. It is also necessary for you to provide proof of honorable service and discharge.

For Surviving Spouses

The DD Form 214, the marriage license, and the death certificate of the deceased spouse can be presented by a surviving spouse who does not get dependency benefits. Additionally, you must print and fill out VA form 21P-534-ARE from the VA benefits website .

The surviving spouse of a dependent person must complete VA form 26-1817 to receive dependency benefits. The form can be downloaded for free from the VA benefits website.

After you have your evidence, you can apply for your COE in a few ways. You can apply online by going to the VA eBenefits website. A completed VA Form 26-1880 can also be mailed with your documents.

Qualifications for VA loans: income, debt, and credit

Lenders will assess you based on your credit, debt, and income to determine if you qualify and what interest rate they will offer.

Credit requirements

To qualify for a VA loan, you do not need to have a certain credit score . FICO credit scores are typically in the low 500s or 600s depending on the VA mortgage lender.

DTI for VA loan

VA recommends a debt-to-income ratio of no more than 41%. The DTI ratio, however, isn't the only factor lenders consider when reviewing mortgage applications. Borrowers with higher DTI ratios may be approved if they have enough "residual income." It is the amount left after paying debts, housing, and other obligations.

Requirements for VA loans

VA loans usually do not require a minimum down payment. In some cases, you may need to make up part of the difference if the purchase price is higher than the appraised value. You will have to make a down payment if your home price exceeds the county loan limit and is subject to VA loan limits.

If you are buying in a competitive market with more buyers than sellers, you may be required to make a down payment. In a bidding scenario, the seller will require a deposit. It shows that you are serious about buying the property. If you put down some money, you will likely be able to reduce the VA funding fee.

Property requirements for VA loans

To qualify for a VA loan, your dream home must meet the minimum property requirements. VA loans require homes to meet safety, structural, and sanitary standards. Once you've signed a contract to buy a home, the lender will hire a VA-approved appraiser to estimate the property's market value. If you want to refinance a VA loan, you might need an appraisal as well.

Eligibility for other VA loans and grants

Veterans and service members with a service-connected disability can also get housing grants or home loans from the VA.

Disability housing grants

Three grants are offered to veterans and service members with service-connected disabilities to help them buy or modify a home. The Specially Adapted Housing grant can be used to purchase or upgrade an existing home. If you or a family member own or will buy a home, you may apply for the Special Housing Adaptation grant. Temporary Residence Adaptation grants a re for temporary living arrangements at the home of a family member. Any grant you apply for must be related to your service-connected disability.

The VA website offers online applications. You can also download VA Form 26-4555  and submit it to your nearest regional loan office.

Native American Direct Loan

Through the Native American Veteran Direct Loan program, Native Americans can buy, build, improve, or refinance a home on federal trust lands. There is a Native American program available to members of certain tribes and their spouses, in addition to Alaska Native corporations and residents of Pacific Island countries.