Are you a veteran that hasn’t used their VA entitlement yet? The good news is that if you are eligible, the VA loan provides a great way to purchase a home. The loan has flexible underwriting guidelines and you don’t need to put any money down on the home. This means you can be a first-time homebuyer and get a home with no money down.
Are you Eligible?
The first thing you need to ask yourself is if you are eligible for the VA loan. This is different than qualifying for it. You must be able to prove that you are eligible with your Certificate of Entitlement. This VA-provided certificate gives you access to the VA loan program. You will receive it if you:
- Served in the regular military and served at least 90 days during wartime or 181 days during peacetime
- Served in the National Guard or Reserves and served at least 6 years
The VA will provide you with a certificate that gives you access to a VA loan up to $484,350 with no down payment. This is the full entitlement amount that each eligible veteran receives.
Do you Qualify?
The next step is deciding if you qualify for the VA loan. Just because you are eligible doesn’t mean that you qualify for the loan. You qualify for a VA loan by meeting the following:
- Minimum 620 credit score
- Maximum 43% total debt ratio
- Enough disposable income each month to meet the VA guidelines (based on your family size and location)
- No recent foreclosures
- No recent bankruptcies
- Proof that you will live in the home as your primary residence
This is how the lender will determine how much money you can borrow. It’s not automatically the full $484,350 that you qualify to receive – it’s however much fits within your qualifying parameters.
How Veterans Don’t Need a Down Payment
You might wonder how it’s possible that you don’t need a down payment with a VA loan. From the looks of things, the VA guidelines are rather flexible, which means there is a risk of default. A 620 credit score is low when you compare it to the conventional loan requirements that typically want at least a 680 credit score.
VA lenders are able to get away without requiring a down payment from you because of the VA guaranty. The VA promises to pay the lender back 25% of the amount that you default on, assuming that you default. A 25% payback is much more than a lender could get normally as most borrowers don’t put down more than 5% on a home.
The VA provides this guaranty for eligible veterans that haven’t used their entitlement before. As a first-time homebuyer, you would qualify under this rule. Now, once you use your entitlement, you can’t take out another VA loan with no down payment unless you pay off your current loan in full and sell the home. The VA will then reinstate your entitlement, allowing you to buy another home with no down payment, if you desire.
Watch the Closing Costs
Just because you don’t need a down payment, though, doesn’t mean that you don’t need money at the closing. There are still closing costs that you will have to pay. Some borrowers may be eligible to wrap the closing costs into their loan if there is room between the home’s value and the amount you borrow. If there isn’t room, you may have to pay the costs on your own at the closing.
If you don’t have the funds to pay the closing costs, you may be able to get help in one of two ways:
- Ask the seller for help – Sometimes sellers are willing to provide help with the closing costs so that you can close on the loan. They typically provide them as a seller credit at the closing, which decreases the amount of cash you must bring to the closing.
- Ask the lender for help – The lender may be able to give you a no-closing cost loan. They cover the closing costs for you and in exchange, they charge you a slightly higher interest rate to cover the cost of what they paid for you.
Getting a VA loan with no down payment is simple if you are eligible for the loan. This gives you the chance to buy a home despite not having any money to put down on it.