Applying for a zero-down home loan through the Veterans Administration (VA) is a relatively straightforward process. However, it helps Pinehurst homeowners to know what the requirements are, and to have the required documentation in hand in advance.
The Veterans Administration home loan program was established in 1944 as an aid for World War II veterans to transition back to civilian life following World War II. It offered then, as it does now, a zero-down home mortgage to veterans, as well as to active duty service members, who have proof of acceptable service.
If there are questions about eligibility, check with the VA, a local lender, or search eligibility specifics online. Although VA loans are federally insured, they are written through private lenders, and may also have varying terms and conditions. As with any loan, it pays to compare the products offered from several lenders.
Qualifying for the Loan
Any successful applicant will have an acceptable credit score and demonstrate an ability to repay. However, because the loan is guaranteed by the government, requirements are less stringent than for a conventional mortgage. Interest rates are competitive, and there is no requirement for PMI, or private mortgage insurance, which can represent a substantial monthly savings. Some common loan costs cannot be charged to a VA applicant, and there are limitations on certain other fees.
In general, a VA loan applicant should have:
- A credit score of at least 620;
- A DTI (Debt to Income) Ratio of 41 percent;
- A qualifying property.
Most types of homes will be eligible for VA financing, including new and pre-owned homes, modular and mobile homes, townhomes, condos and manufactured homes. Finally, although there is no cap on dollar amount a veteran can borrow, there is a limit to the amount the VA will guarantee; at present, that limit is $453,100, in most cases.
Check with each authorized lender for additional specifics.
Comparing Loans: VA, FHA and Conventional
There are pros and cons to each type of home mortgage. Here are some things to consider.
The biggest advantage of the VA loan is its zero-down feature, which mean a borrower can buy a home with minimal out-of-pocket cash. It is not a free ride for the veteran, however, and as with all federally insured programs, there is substantial oversight. Additional advantages include the waiver of mortgage insurance, some leeway when it comes to credit scores and debt percentages, and the absence of pre-payment penalties.
Also, although many VA loans are written for first-time homebuyers, a veteran may have eligibility restored, even after years have passed, in order to obtain another VA loan. It is not a one-time-only benefit.
FHA mortgages, also insured by government programs, are notable for lenient qualification guidelines, but in most cases they require a down payment of at least 3.5 percent. Increasing the down payment may result in a lower interest rate, but all FHA loans require mortgage insurance, sometimes for the life of the loan.
Conventional mortgages vary widely in terms, interest rate and scope. Conventional loans often require a down payment of 20 percent, and typically require a higher credit score, a more stable credit history and a longer record of job security and earnings. They do, however, make up the bulk of home loans in this country, and are typically processed faster than either FHA or VA loans.
When the VA loan program was established nearly eight decades ago, it was partly as a thank you and partly as a benefit. It still exists today for the same reasons.