Another plus: A VA loan doesn’t require mortgage insurance, as do Federal Housing Administration and conventional loans with less than 20 percent down payment. The benefit translates into significant monthly savings for VA borrowers. For instance, a borrower who takes a $200,000 FHA-insured mortgage pays more than $200 a month for mortgage insurance alone.
“And with a VA loan, you don’t have to save all the money you would have to save for a conventional loan,” Moon says.
FEES: Although the costs of getting a VA loan are generally lower than other types of low down payment mortgages, they still carry a one-time funding fee that varies, depending on the amount of the down payment and the type of veteran.
A borrower in the armed forces getting a VA loan for the first time, with zero down payment, would pay a fee of 2.15 percent of the loan amount, Frueh says. The fee is reduced to 1.25 percent of the loan amount if the borrower makes a 10 percent down payment. Reservists and National Guard members normally pay about a quarter of a percentage point more in fees than active-duty members pay.
Those using the VA loan program for the second time, without a down payment, would pay 3.3 percent of the total loan amount.
“And if you receive disability compensation, the fee is waived,” Frueh says.
UNDERWRITING REQUIREMENTS: Veterans Affairs does not require a minimum credit score for a VA loan, but lenders generally have their own internal requirements. Most lenders ask for a credit score of 620 or higher, Moon says.
“There are players that would go lower, but they would probably charge a higher interest rate,” he says.
Borrowers must show sufficient income to repay the loan and shouldn’t have excessive debt, but the guidelines are usually more flexible than for conventional loans.
“We always tell underwriters to do their due diligence, but this is a benefits program, so there is some flexibility,” Frueh says.
VA guidelines allow veterans to use their home-loan benefits a year or two after bankruptcy or foreclosure.
“We look at the whole credit picture, what was the reason for the credit bankruptcy, and where the borrower is now,” Bell says.
VA loans are available only to finance a primary home. A VA loan cannot be used to purchase or refinance vacation and investment homes.
