The VA loan provides a great opportunity for military members to obtain home ownership in a quicker amount of time and with less money out of pocket than other traditional financing options.
- The buyer can finance 100% of the purchase price – No down payment
- Active duty, retired and spouses of a service member are eligible
- VA Loan Vs. FHA or Conventional Loan.
- VA Loan = No Down Payment vs. 5-20% Down Payment
- More relaxed qualifications
- May have higher interest rate vs. FHA or Conventional
- The VA loan limit for El Paso county is $484,350 for a single-family home
- Lenders help calculate how your VA Entitlement, but you have it for life and it can be reinstated with the sale of a home that has VA financing
- Buyers can purchase single family and up to a four-plex but it must be a primary residence
- Buyer must have good credit and consistent income
- There is a VA Funding Fee, which can be rolled into the loan
Utilizing VA Financing
The VA loan provides housing and assistance for veterans and their families by providing a zero-down payment mortgage that is backed by the Veteran’s Administration (VA). The VA does not provide the loan, but instead acts as a security to the loan. If the borrower fails to pay their mortgage, the VA promises to cover the losses of the bank. Do not misunderstand this as preventing foreclosure, however. If you use a VA loan, you must still make regular, timely payments of your mortgage. The VA loan simply provides the collateral to the bank on your behalf.
To be eligible for the VA loan, you must meet one of the following criteria, and have been discharged under honorable conditions if you are no longer serving:
- Serve on active duty during wartime for at least 90 consecutive days
- Serve on active duty during peacetime for at least 181 days
- Serve in the National Guard or Reserves for at least 6 years
- *Spouses of a service member who died in the line of duty or as a result of a service related injury may also be eligible.
VA loan vs. Conventional loan
VA loans require zero money down and no primary mortgage insurance (PMI), while conventional loans typically require 20% down or the payment of PMI. In addition, VA loans often have lower interest rates and slightly relaxed qualifications when compared to conventional loans.
Regulations & Fees
Loan Limits: VA loan limits vary by location. The current amount for El Paso county is $484,350. You can purchase a home for more than the limit, but you must then provide a down payment for the rest of the purchase price. Keep in mind that just because the VA entitles up to a certain amount, does not mean that everyone has the credit or income history to support that amount.
Entitlement: The VA loan secures about 25% of the loan, which is known as your entitlement. Calculating entitlement can get a bit tricky as it depends on several factors. It’s best to work with a lender to determine your individual entitlement. Your VA loan entitlement is for life and can be reinstated if you decide to sell or refinance into a conventional loan
Property type: The home you purchase with the VA loan must be your primary residence, meaning it must be the house you live in. You can purchase up to a four-unit complex using the VA loan. Click here to see the loan limits for more than a one-unit property.
Credit & Income: You must have good credit to qualify for the VA loan. Required credit scores vary by lenders, so it is best to check with yours. Likewise, you must be able to show sufficient income to cover the cost of your mortgage. Keep in mind that BAH does not count as income as it is not a life-long entitlement. Disability and retirement pay, on the other hand, do count as income.
Funding Fee: The VA loan requires payment of a funding fee which is wrapped up into the cost of your loan. The funding fee for first time use is 2.15% and 3.3% for subsequent uses after that. The funding fee is waived, however, if you collect 10% or more disability from the VA.
Steps to Using Your VA Loan
1. Get a certificate of eligibility (COE). You can obtain this yourself by completing a VA Form 261880, or by working with a lender. Note: A lender can usually obtain it for you much faster.
2. Start putting together a digital file of documents that will be needed to process your mortgage:
- Bank statements for the last 2 months
- Tax returns for the last 2 years
- W-2s for the last 2 years
- Other investment documentation if any
- Proof of income (LES if you are on active duty)
- Orders if you are PCSing to a new location
- Leases for any investment properties
3. Find a lender that can help get you pre-approved and ensure you have the credit score necessary for the loan.