If you served in the military, you may have access to the VA home loan benefit. This great government-backed program provides 100% financing and flexible guidelines. Veterans throughout the Louisiana area can use this program to buy the home of their dreams with no down payment.
Keep reading to learn how the VA loan can help you.
VA Loan Basics
The VA doesn’t write or fund VA loans. Instead, you get the loan from a VA-approved lender. The VA guarantees the loan. In other words, they pay the lender back if you default on the loan. The guarantee allows lenders to fund loans with flexible underwriting guidelines.
The VA sets the parameters for the loans, but each VA lender sets its own guidelines too. You may find some lenders with ‘special requirements,’ but we help you navigate those issues. We help you find the VA loan that is the most affordable and helps you reach your homeownership goals.
VA Loan Eligibility
The Louisiana VA loan has one unique aspect – you must be eligible for it. Not everyone is eligible. First, you must either be a veteran or active in the military. Next, you must meet the service requirements:
- Serve at least 90 days during wartime
- Serve at least 181 days during peacetime
Next, your discharge must be under anything other than ‘dishonorable.’
If you meet these requirements, you should have VA home loan entitlement. The VA provides a Certificate of Eligibility if you are eligible. Lenders need this COE to determine how much loan you are eligible to receive with the VA guarantee.
The entitlement is the amount the VA will guarantee your loan. The VA guarantees 25% of the loan amount up to the national conforming amount of $484,350. Each eligible veteran starts with full entitlement. EDIT: AS on 01/2020 the VA Home Loan no longer has a max limit!
Once you buy a home, the VA deducts the used entitlement. For example, if you buy a $250,000 home, you use up $62,500 in entitlement ($250,000 x 25%). That leaves you with $58,587 in remaining entitlement. The used entitlement remains tied to the home for the life of the loan. Once you pay off the loan and sell the home, you can petition the VA to reinstate the entitlement. You can then reuse your entitlement to buy another home.
VA Loan Qualifying Requirements
VA home loans have flexible underwriting guidelines, making it easy for veterans to secure a home loan. if you know you’re eligible for benefits, consider the following qualification guidelines:
- Minimum 580 credit score – The VA doesn’t specify a minimum credit score per se, but most lenders require at least a 580 in order to secure VA financing
- Maximum total debt ratio of 41% – The VA focuses on your total debt ratio. This is a comparison of your total monthly debts (credit cards, car payments, student loans, personal loans, alimony, and child support) to your gross monthly income (income before taxes).
- Stable income and employment – You must prove stable income either via the military or your civilian job. If your service will end within the next 12 months, you must prove continuance of income from your civilian job.
- Disposable income – The VA requires a certain amount of disposable income (money left after paying your bills). The amount you must have depends on your family size and location. The disposable income covers your family expenses and daily cost of living.
- Proof of owner occupancy – You may only use VA financing on owner-occupied properties. VA financing isn’t for use on investment homes, vacation homes, or second homes.
Passing the VA Appraisal
Despite its flexible guidelines, the VA has strict appraisal guidelines. The guidelines are in place to ensure that you buy a stable and secure home. Sellers often fear the VA appraisal, but it’s not much different than a standard appraisal. Yes, the VA has specific points the appraisal must hit, but most homes in ‘decent condition’ pass the appraisal.
The home must be safe, sound, and sanitary. The VA puts the requirements in place to help you avoid buying a home that becomes a ‘money pit.’ The point behind the VA loan is to help you get the house you desire with as little money out of pocket as possible.
VA Down Payment Rules
The down payment is where you get the most benefits out of your VA loan. You don’t actually need a down payment. You can borrow as much as the home is worth, assuming the appraised value is at least as much as the purchase price.
Some VA loan borrowers in Louisiana decide to put money down on the VA loan and that’s okay. Investing your own money into the home helps you earn equity in the home faster. It’s not a requirement, but it is a possibility as long as you can prove the funds’ origination. The lender must determine the funds belong to you and aren’t borrowed funds that require repayment.
VA Loans After Foreclosure and Bankruptcy
The VA has lenient guidelines regarding buying a home after bankruptcy or foreclosure. Typically, you need two years of ‘clean credit’ to qualify. This means two years from the date of the bankruptcy discharge or the foreclosure sale. If you use that time to make good on your debts and pay your bills on time, your credit score should increase accordingly.
There is one exception. If you defaulted on a VA home loan, you lose that portion of your entitlement. Let’s say you lost a $150,000 home. You would lose the $37,500 in entitlement. Now, because the VA does provide $121,087 in entitlement, you may still have enough entitlement to buy another home, once you qualify and wait the required two years.
VA Seller Concession Guidelines
The VA allows sellers to contribute up to 4% of the home’s sales price in seller concessions. If you buy a $200,000 home, the seller can help with up to $8,000 in closing costs. This helps reduce the amount of cash you need out of pocket at the closing.
The 4% limit pertains to only certain closing costs, though. They include:
- Pre-paid closing cost expenses
- VA funding fee
- Payment of credit balances, collections or judgments as required by the lender
- Temporary interest rate buy downs
If you pay any discount points, the 4% limit does not pertain to them.
VA Funding Fee and Mortgage Insurance
Despite the fact that the VA provides 100% financing, they don’t require mortgage insurance. That’s just another benefit that Louisiana veterans can enjoy. Your monthly payment only consists of principal, interest, real estate taxes, and homeowners insurance.
You will, however, pay a funding fee. This is a one-time fee charged by the VA. You pay it in cash at the closing. If you can’t pay it, the seller can pay it for you, or you can wrap it into your loan amount if there’s room between the sales price and appraised value.
The amount of the VA funding fee depends on the amount of your down payment:
- 0% down payment – 2.15% of the loan amount
- 5% – 9.9% down payment – 1.5% of the loan amount
- 10% or higher down payment – 1.25% of the loan amount
How Much Can you Borrow?
The VA guarantees loans up to $484,350, but that doesn’t mean that’s how much you can borrow. That’s the maximum amount the VA will guarantee. You may be eligible to borrow more or less than that amount.
If you need to borrow more than $484,350, you’ll need to make a down payment. Lenders require a 25% down payment on the difference between the VA guarantee and the sales price. For example, if you found a home for $500,000, you would need a down payment of $3,912 or 25% of the difference between $500,000 and $484,350.
Now, keep in mind, you must qualify for the loan amount, whether above or below $484,350. The entitlement isn’t a guarantee of a loan amount. It’s a ‘right’. You must prove that you have the income and credit to qualify for the loan – meeting the VA guidelines.
VA Refinance Options
The VA also has great refinance options. Whether you have a current VA loan or not, you can use your VA home loan benefits for either of the following programs:
- VA cash-out refinance – Any veteran with eligibility can use the VA cash-out refinance. You can refinance your outstanding loan amount, plus any amount of equity you want to take from the home. You can borrow up to 100% of the home’s value with the VA cash-out refinance.
- VA streamline refinance – If you have a current VA loan and just want to lower the interest rate or change the term, the VA streamline program is an option. You don’t have to verify your qualifying requirements for this program. The VA requires on-time mortgage payments and a benefit for refinancing – that’s it. Some lenders may have additional requirements, which we will walk you through.
If you are a veteran in the Louisiana area, let us help you in your home buying process. We’ll help you find the right VA loan for your needs. With no down payment and flexible underwriting guidelines, we can help you buy the home of your dreams!