VA Home Loans & Your Credit History

A VA home loan is a U.S. Department of Veteran Affairs guaranteed mortgage loan that is aimed at financing American veterans and their surviving spouses (as long as they do not remarry) when they are buying homes. It is a home loan program that was created in 1944 by the congress to help returning service (military) members to own homes thus achieving their home ownership dreams.

Instead of issuing loans, the Department of Veteran Affairs pledges to repay a quarter of the loan it has guaranteed, or there about, in case the person who borrowed the loan defaults on paying.

This makes it, perhaps, the most revolutionary, flexible and powerful loan product in the market today. Having this repayment guarantee gives VA approved lenders more protection, making it easy to even lend to military personnel and qualified veterans at very competitive rates and attractive terms.

Who qualifies for a VA home loan?

There are four main groups of people who qualify for a VA loan. These are the veterans, reservists, National Guard members, active duty personnel, and some of the surviving spouses of any of the above groups.

A military member is eligible if he/she has served for at least 181 days on active duty or has served for at least three months during time of war. For the National Guard service and reserves, you should have been in service for at least 6 years to be eligible. A spouse becomes eligible if their partner was killed in the line of duty or died during time in service.

Eligibility

To prove eligibility for this mortgage loan, you need to get a Certificate of Eligibility (COE). This can be obtained by applying online, applying through the VA lender, or applying by mail.

Why VA Home Loans – The Main Benefits

The primary benefit of the VA loans is that you can be able to purchase a home with no money down. In other words, you get 100 percent financing. This is unlike any other loan products and packages out there that require that you put down a certain amount first as a down payment/deposit and then they top up for you.

These home loans for the veterans also come with less stringent standards of underwriting, as well as more flexible and easily achievable requirements. In actual sense, most borrowers who get these mortgage loans could not have qualified for the conventional loans according to the Federal National Mortgage Association.

A VA home loan does not come with a private mortgage insurance, otherwise referred to as PMI, which is a monthly expense that a conventional loan borrower will be required to pay unless they are able to pay at least 20 percent of the loan amount.

VA mortgage rates are also very competitive, being lower than the conventional loan rates. This comes with no penalties on prepayment, higher debt-to-income allowable ratios, as well as a clear and streamlined refinancing procedure that does not require additional underwriting. Above this, a seller can be able to pay up to 6 percent of concessions and closing costs.

The Cons

Besides the perception that VA loans are difficult and slow to process (which is now not true), it is true that these loans are not very attractive for anyone who has large cash reserves and greater liquidity. Such a person may find a better deal if they go with a conventional 30 year fixed mortgage rate loan. If this is you, then you should compare these loans with the fha mortgage rates to see where you might fit best.

Due to the nature and structure of these VA loans, where all or almost all of the closing costs are paid by the seller, they tend to be less attractive to home sellers. As a result, you may find it more difficult to get a house to buy.

All said, unlike its close equivalent in the fha mortgage where you will need a good credit score and at least 3 percent down payment among other qualifications to be eligible, a VA loan is even more flexible, requiring zero down payment, with even less stringent credit score terms. It is the perfect option for the veteran who wants to own a home but has a low income and a less-than-perfect credit. There is, practically, no other lending product out there that can currently match the buying power and the benefits of the VA home loans.