A VA loan is a mortgage loan that is guaranteed by the U.S. Department of Veterans Affairs, that was designed to offer long-term financing to eligible American veterans and their families. The VA loan program helps supply home financing to qualified veterans in areas where private financing is not generally available, and helps veterans purchase properties with no down payment.
The VA loan allows veterans 100 percent financing without private mortgage insurance or 20 percent second mortgage. There is a VA funding fee of up to 3.3 percent of the loan that must be paid, but is allowed to be financed. In a purchase, veterans may borrow up to 100 percent of the sales price or reasonable value of the home, whichever one is less. With no monthly PMI (private mortgage insurance), which is an extra insurance that lenders require lenders to pay if their loan amount exceeds 80 percent of their new home’s value, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing larger loans without increasing monthly payments. However, in a refinance, veterans may only borrow up to 90 percent of reasonable value.
As far as eligibility, any veteran or person that is still in the Armed Services, that has not been dishonorably discharged, and who has served at least 181 days (90 days in wartime) is eligible for a VA home loan. A FICO credit score of 580 is the standard that the VA sets for home loans, although this can be flexible. Credit problems and debt income ratio can also be factors in eligibility; such as, bankruptcy or foreclosure without a one- to two-year record of good use of credit following.
