VHA loans are a form of mortgage offered to military service members and veterans. The program was established by the United States Department of Veterans Affairs to help veterans, service members, and their surviving spouses purchase or refinance a home with no down payment at a competitive interest rate. No private mortgage insurance (PMI) is also a feature included in this type of loan.
How does a VHA Loan Works?
As mentioned above, a VHA loan helps active and veteran service personnel, together with their surviving wives purchase or refinance a home through privately issued loans backed by the federal government. It is available for members of the Army, Navy, Coast Guard, Air Force, Marine Corps, and military spouses.
Types of VHA Loans
There are different types of VHA loans available. Here are the most common types.
Home Purchase Loans
Competitive interest rates are usually given to veterans and currently in service members to purchase a new home. No down payment and PMI are featured in this type of loan.
Cash-Out Refinance Homes
Cash-out refinances loans are loans borrowed against home equity to pay off debt, fund school, or be used in home improvements. This refinancing option offers a new mortgage to the borrower, larger than the existing one converting the home equity into cash.
Interest-Rate Reduction Refinance Home
IRRLS also known as streamline refinance loans offer lower interest rates by refinancing and existing VHA loan. This refinances a fixed-rate loan at a lower interest rate or converts the adjustable-rate mortgage into a fixed-rate mortgage.
Native American Direct Loan
This VHA loan type aids eligible Native American veterans finance the purchase of a new home, construction, or improvement on properties located on federal trust land. Reduced interest rates are available for such types of loans.
Eligibility
To be eligible for a VHA funded home loan or refinance, you must have the following qualifications.
- You are on active duty and have served the country continues in the past 90 days
- A veteran that meets the length of service requirement which s 90 days in wartime and 181 days in peacetime.
- Completed 90 days of active duty or six creditable years as National Guard or Selected Reserve
- Surviving spouse of a veteran who died in service or from a service-connected disability and has not remarried, or remarried after age 57.
- Discharged for a service-connected disability without the length of service requirements as approved by the U.S. Department of Veterans Affairs
The Application Process
To apply for a VHA loan, you can visit this website to check for your eligibility – https://www.veteransunited.com/. You can also apply through a bank, mortgage company, or a credit union that offers this type of loan. The process is quite easy and is similar to applying for other types of mortgages. Employment details, income, and financial information are required.
What makes VHA loans different from other types of loans is the VHA certificate of eligibility. This serves as proof that you meet the service requirements for the VHA loan.
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The Review and Approval Process
Private lenders will still review your financial documents to be able to determine your credit, debts, and income. They are still the ones to decide whether you are eligible for a loan and determines the interest rate offer. Although backed by the federal government, funding for these type of loans are from private institutions.
Credit Requirements
Although there is no minimum credit score, a low to mid 600 FICO Credit Score is ideal. Lenders will still look into your credit report and will be particular with your timely payments.
Debt to Income Ratio for VHA Loans
Ideally, the debt to income ratio preferred for VHA loans is no more than 41%. However, applications with higher DTI ratios can still be approved if they have enough residual income.
Down Payment Requirements
In most circumstances, a down payment is not required for a VHA loan. However, when the value of a home is greater than the appraised value, the borrower shall cover the portion of the difference. If a borrower is also subject to a VA loan limit, a down payment will still be required.
VHA loan limits are applied to mortgage applicants with defaulted VA loans or have active VA loans.
Down payment may also be required in a seller market most especially in bidding situations to show your seriousness as a buyer.
Setting aside a deposit or down payment for your mortgage helps reduce the VHA funding fee. The VHA loan funding fee is 2.3% for zero down payment, 1.65% for a mortgage with a 5%-9.9% down payment, and 1.4% for down payments of 10% or more. Although mortgage insurance is not required, this funding fee is essential.
VHA Loans in Summary
Again, VHA loans are available for active service members, veterans, and their surviving spouses. It requires eligibility and goes through the usual process that other types of mortgage applications go through. Similar to other types of home loans, VHA loans can cover mortgage applications for purchasing or building a home, improvements and renovations, repair, and refinance.
The VA sets the qualifying standards for this type of loan, dictates the type of mortgage offered, and backs the loan, but does not refinance it. Private lenders such as mortgage companies and banks provide financing for these types of loans.
Certification of eligibility is required when applying for a VHA loan. This certificate can be obtained from the VA website. This serves as proof of the service length of the applicant.
Unlike other types of loans, it is easier to qualify for VHA loans.
VHA loans similar to FHA loans and other loans backed by the United States government are secured through the Government National Mortgage Association. These carry the guarantees of the U. S. government against default.
Are you still confused about how VHA Loans work? Do you need help in buying a new home but are unsure of the process? Talk to Elizabeth Fenderson Real Estate today and start your journey in buying your dream home.