VA Loan Guide

VA HOME LOAN GUIDE

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VA LOAN BASICS • •

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Created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit.

A VA Home Loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA) and issued by qualified lenders. It allows eligible veterans, active-duty personnel, and their surviving spouses to purchase a home with no down payment and limited closing costs. The VA guarantees a portion of the loan, enabling the lender to provide more favorable terms.

Although the VA loan is a federal program, the government generally does not make direct loans to Veterans. Instead, private lenders like USA Homeownership Loans while the loan while the Department of Veterans Affairs offers a guaranty.

This guaranty protects the lender against total loss should the buyer default, which provides an incentive for private lenders to offer the VA loan with better terms than other mortgage options.

VA LOAN PROCESS

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Get Pre-Approved: Contact a VA-approved lender to begin the pre-approval process.

Find a Home: With pre-approval in hand, you can start looking for a home that meets your needs.

Submit an Offer: Once you’ve found a home, submit an offer through your real estate agent.

Have the Home Inspected: As part of the loan process, you’ll need to have the home inspected by a professional.

Get an Appraisal: An appraisal is required to determine the value of the home.

Get Final Approval: The lender will review all the documents and give final approval for the loan.

Close the Loan: Sign all the necessary paperwork and close the loan.

Make Your Mortgage Payments: Now that the loan is closed, you can begin making your mortgage payments.

DOCUMENTS TO GET STARTED WITH VA LOAN

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A copy of your driver’s license or other government identification A copy of your DD-214 or Reserve/Guard points statements Obtaining Certificate of Eligibility (COE) A statement of service for active duty borrowers Recent pay stubs and W-2s for the last two years Recent bank statements Disability award letters

VA HOME LOAN GUIDE

CERTIFICATE OF ELIGIBILITY (COE) A Certificate of Eligibility (COE) is a document issued by the U.S. Department of Veterans Affairs (VA) that verifies a borrower’s eligibility for a VA loan. The COE serves as proof that the borrower meets the criteria for a VA loan based on their military service. It also contains important details about the borrower’s eligibility status and entitlement.

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To obtain a Certificate of Eligibility (COE) for a VA loan, you will need to fill out VA Form 26-1880, Request for a Certificate of Eligibility.

You can submit the form online through the ebenefits portal, or you can print it out and mail it with any required documentation to the VA Eligibility Center.

Get qualified with a USA Homeownership Loan officer and they will order the COE for you.

Note: If you have any questions about your eligibility for a VA home loan, please call the VA regional loan center at 877-827-3702 - Monday through Friday, 8:00 a.m. to 6:00 p.m. EST.

BENEFITS OF USING VA LOAN • • •

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No Down Payment: VA loans allow qualified borrowers to finance 100% of their home purchase. This means that no down payment is required.

Low Interest Rates: VA loans typically offer lower interest rates than conventional mortgages. This can result in significant savings over the life of the loan.

No Private Mortgage Insurance (PMI): Many conventional loan programs require borrowers to pay private mortgage insurance (PMI) if they are unable to make a 20% down payment. With a VA loan, no PMI is required.

Reduced Closing Costs: Closing costs can add up quickly when buying a home. VA loans limit these costs, saving borrowers money.

Flexible Credit Requirements: VA loans are typically easier to qualify for than conventional mortgages. This means that borrowers with less-than-perfect credit may still be able to get approved.

Streamlined Refinancing: VA loans allow borrowers to easily refinance their mortgages with a streamlined process. This can help borrowers to reduce their interest rates and save money on their monthly payments.

Multiple Uses – The VA Loan is not a one-time option. Once you earn the VA loan benefit, it’s yours for life. You can reuse the VA loan over and over again, and it’s even possible to have more than one active VA loan at the same time.

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VA LOAN PRODUCTS • • • • • • •

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Purchase Loan: Allows veteran homebuyers to purchase a home without a down payment.

Cash-Out Refinance Loan: Allows veteran homeowners to refinance their mortgage and receive cash out of their home’s equity.

Interest Rate Reduction Refinance Loan (IRRRL): Helps veterans refinance their current VA loan into a lower interest rate loan.

Adapted Housing Grant: Provides funds to veterans with certain service-connected disabilities to purchase or construct an adapted home.

Native American Direct Loan (NADL): Offers direct loans to Native American veterans for the purchase, construction, or improvement of a home on federal trust land.

Manufactured Home Loan: This loan is designed to help veterans finance the purchase of a manufactured home.

VA Jumbo Loan: Typically, a VA loan is considered a VA jumbo loan when the loan amount exceeds the county-specific VA loan limit. The VA loan limit for most counties in 2023 is $726,200 but reaches $1,089,300 in high-cost areas. With a VA jumbo loan, homebuyers have increased access to homes in high-cost metro areas, while utilizing their VA loan benefits.

VA Energy Efficient Mortgage: The VA allows Veterans to borrow additional money to pay for energy efficiency improvements to a home, as part of either a home purchase or a refinance. Veterans can finance up to an extra $6,000 to cover the cost of qualified improvements, like storm or thermal windows, heat pumps and solar heating and cooling systems. Homeowners can’t use this option to purchase appliances, window air conditioning units and other non-permanent additions.

VA FUNDING FEE

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The VA Funding Fee is a one-time fee paid to the VA to help cover the cost of the VA Home Loan guarantee.

The fee can be paid in cash at closing or it can be rolled into the loan amount.

The fee varies depending on the type of loan, down payment, and the borrower’s military category.

The VA also exempts some Veterans and surviving spouses from the funding fee entirely.

The most common exemption is for Veterans receiving compensation for a serviceconnected disability. Surviving spouses with VA loan eligibility are also exempt. Only the VA can make a determination about funding fee exemptions.

VA HOME LOAN GUIDE

VA HOME LOAN VS. CONVENTIONAL VS. FHA LOANS COMPARISON FHA LOAN

CONVENTIONAL LOAN

VA HOME LOAN

Minimum Down Payment

3.5%

3%

0%

Minimum Credit Score

580+

620 – 720

N/A

Private Mortgage Insurance (PMI)

Life of the Loan

Applies if over 80% Loan to Value (LTV)

No PMI

Debt to Income (DTI)

43%

45%

41%

Down Payment

3.5%

3% - 20%

0% for Qualified Borrowers

Origination Costs

27% Average

22% Average

Lowest

According to HDMA Data

According to HDMA Data

According to HDMA data

Qualification

Easier

Standard

Easier

Interest Rates

Low

Standard

Lower

VA REFINANCE OPTIONS VA Cash Out Refinance - A VA-backed cash-out refinance loan may help you to: • Take cash out of your home equity to pay off debt, pay for school, make home improvements, or take care of other needs • or Refinance a non-VA loan into a VA-backed loan On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

You’ll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Make sure you understand how your new loan amount relates to the value of your home. While your lender can advise you on the costs and benefits of the transaction, you’ll want to be sure you understand what you’re getting into.

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STEPS ON GETTING A CASH-OUT REFINANCE LOAN 1. Find a lender.

You’ll go through a private bank, mortgage company, or credit union—not directly through the VA—to get a cash-out refinance loan. Terms and fees may vary, so contact several lenders to check out your options.

Note: Be careful when considering home loan refinance offers. Claims that you can skip payments or get very low interest rates or other terms that sound too good to be true may be signs of a misleading offer.

2. Request your Certificate of Eligibility (COE).

You’ll need to show your COE to your lender as proof that you qualify for the home loan benefit.

3. Give your lender any needed information - In addition to your COE, you’ll need to give your lender: • Copies of paycheck stubs for the most recent 30-day period • W-2 forms for the previous 2 years • A copy of your federal income tax returns for the previous 2 years (required by many, but not all lenders) • Any other information your lender requires Note: The lender will order a home appraisal, an expert assessment of the value of your home.

4. Follow your lender’s process for closing on the loan, and pay your closing costs.

You may need to pay a VA funding fee at closing. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.

VA IRRL/STREAMLINE REFINANCE Often called a “streamline” refinance, an IRRRL may help you to: • Lower your monthly mortgage payment by getting you a lower interest rate, • Or Make your monthly payments more stable by moving from a loan with an adjustable or variable interest rate (an interest rate that changes over time) to one that’s fixed (the same interest rate over the life of the loan)

VA HOME LOAN GUIDE

On a no-down-payment loan, you can borrow up to the Fannie Mae/Freddie Mac conforming loan limit in most areas—and more in some high-cost counties. You can borrow more than this amount if you want to make a down payment.

You’ll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars. Before you decide to refinance, divide your closing costs by how much you expect to save every month by refinancing to see if it’s worth it. While your lender can advise you on the costs and benefits of the transaction, you’ll want to be sure you understand what you’re getting into.

STEPS ON GETTING STREAMLINE IRRL REFINANCE 1. Find a lender.

You’ll go through a private bank, mortgage company, or credit union—not directly through us—to get an IRRRL. Terms and fees may vary, so contact several lenders to check out your options.

Note: If you have a VA home loan be careful when considering home loan refinance offers. Claims that you can skip payments or get very low interest rates or other terms that sound too good to be true may be signs of a misleading offer.

2. Give your lender any needed information.

If you have the Certificate of Eligibility (COE) you used to get your original VA-backed home loan, take it to your lender to show the prior use of your entitlement. If you don’t have your original COE, ask your lender to get your COE electronically through the VA Home Loan program portal.

3. Follow your lender’s process for closing on the IRRRL loan, and pay your closing costs.

You may need to pay the VA funding fee. This one-time fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Your lender will also charge interest on the loan in addition to closing fees.

Note: With an IRRRL, you can include these costs in the new loan so you don’t have to pay up front. Or, you may be able to make the new loan at an interest rate high enough so your lender can pay the costs.

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MISLEADING REFINANCE MARKETING OFFERS – WARNING BY CFPB The Consumer Financial Protection Bureau and VA are issuing their first, “Warning Order,” to service members and Veterans with VA home loans. If you have a VA home loan, then there is a good chance that you have already come into contact with unsolicited offers to refinance your mortgage that appear official and may sound too good to be true.

Many of these solicitations promise: • Extremely low interest rates • Thousands of dollars in cash back • Skipped mortgage payments • No out-of-pocket costs • No waiting period Don’t be fooled. Before responding to any unsolicited offers, here is what you need to know.

OPERATIONAL ENVIRONMENT Some lenders marketing VA mortgage refinances may use aggressive and potentially misleading advertising and sales tactics. Lenders may advertise a rate just to get you to respond, or you may receive a VA mortgage refinance offer that provides limited benefit to you while adding thousands of dollars to your loan balance.

How will you know if the offer is too good to be true? Here are some offers and tactics to watch out for: •

Offers to skip one or two mortgage payments – Lenders sometimes advertise this as a benefit of a VA mortgage refinance; in fact, VA prohibits a lender from advertising the skipping of payments as a means of obtaining cash in an Interest Rate Reduction Refinance Loan (IRRRL) . Certain lenders nevertheless use this as a selling point when they are unable to offer cash-out or a significantly lower interest rate.

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Offers to receive an escrow refund – Lenders may promise that you will receive a certain amount of cash as a refund from your escrow account; however, the amount you may receive is dependent on how much is left in your account at the time the loan closes, which may be much less than you were promised. We have heard from service members who were promised a certain refund amount and received a much lower amount at closing. We have also heard from service members who have experienced problems with their new escrow accounts after closing and have had to make higher monthly payments to make up for the shortfall.

VA HOME LOAN GUIDE

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Low-interest rates without specific terms – Lenders may advertise a low-interest rate to get you to respond to an advertisement. You might assume these rates are for a 30-year fixed-rate mortgage, but in many cases, the rates are for a 15-year fixed-rate mortgage or an adjustable-rate mortgage, or you may have to pay discount points to receive the advertised rate.

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Aggressive sales tactics – Certain lenders may try to push you into a VA mortgage refinance. For example, you may be called by a lender multiple times or receive VA mortgage refinance offers in the mail that look like a check or bill to get you to open it.

You may be pressured to refinance your VA loan only a month or two after you closed on your current VA loan.

Be prepared to: Understand that certain advertised benefits, such as no out-of-pocket closing costs, skipped mortgage payments, and escrow refunds, are costs that are generally added to your loan and increase the overall principal balance. These are all red flags that may indicate that the loan is less likely to benefit you. Before you proceed with a VA mortgage refinance, be sure to consider the long-term and short-term benefits and consequences of refinancing your loan.

Note: If you have a problem with a VA mortgage refinance or other mortgage issues, you can submit a complaint to the CFPB online or by calling (855) 411-CFPB (2372).

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