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VA Loans

Writer's picture: Josh SurverJosh Surver

Updated: 7 hours ago

What do you know about VA loans? Here's some info to make you dangerous!


Compared to other loan products, VA loans are the best on the market in many ways. Here are some great features:

  • 0% down minimum

  • Financeable funding fee

  • Up to 4% of loan amount in seller credits

  • No PMI

  • Can go over 50% DTI if the file is good

  • Assumable loans available

  • Some of the best rates out there

  • No cap to loan amount


VA loans are guaranteed by Ginnie Mae, Government National Mortgage Association (GNMA). This guarantee is essentially insurance for the lender against borrower default. If a borrower fails to make payments and gets foreclosed on, the lender doesn't bear the full brunt of that risk. Investors on the secondary market for mortgage backed securities are willing to pay more for the lower-risk investments, enabling lenders to offer VA loans to borrowers at lower rates than other loan products.


Instead of assessing a monthly or upfront Property Mortgage Insurance (PMI) to the borrower, the VA pays for the program by assessing a funding fee based on the factors from the VA site below (https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/):



The funding fee can be financed into the loan, meaning the borrower can choose to take a higher loan amount, pushing the LTV as high as 103.3% depending on the funding fee. This will increase the borrower's payment but does not affect their rate. If a veteran has a disability rating of any amount from the VA, this funding fee is waived completely.


One of the little-known benefits of the VA loan is the way seller credits can be used. Unlike other loan programs, the VA allows borrowers to pay off debts with their seller credits, which are capped at 4% of the loan amount. Borrowers can apply these credits toward credit cards, personal loans, car loans, mortgages, etc.


Chapter 8 of the VA Handbook says that the max of 4% of concessions can be applied to the following items:



Take a look at the line in the middle: "Seller concessions do not include payment of the buyer's closing costs, or payment of points as appropriate to the market." This means that, technically, buyers can receive more than 4% of the loan amount in concessions as long as no more than 4% of the amount received from the seller are used for the items above.


In order to qualify for the loan, borrowers must meet certain credit score and DTI limits, but the VA loan is flexible in some ways. If a borrower has mitigating factors in their file, like a high credit score or high reserves, they might be able to qualify with a DTI higher than 50%. I've personally preapproved someone up to a 70% DTI. Each lender is different how they look at these factors.


The standards are similar for assumable VA loans, but as long as you qualify with the servicing lender, all government-backed loans, including VA loans, are assumable. The process is longer and typically less streamlined than new loan origination, but these can be a great option for a veteran or non-veteran looking to take advantage of the low rates of previous periods of time like the early COVID days. I'll do another blog post on assumable loans at a future date as they can be a bit complicated.


One last amazing feature of the VA loan is that there is no limit to the loan amount, so long as you can quality on income and credit standards and have full entitlement available to you.


If you have never used the VA loan before, you have full entitlement. If you have used the VA loan before and still have the loan out on a home, you may still be eligible for VA lending, but the amount of that lending will be limited by how much entitlement you have left. The VA loan limit is $806,500 for veterans who spread their entitlement across multiple properties. For example, if you bought a house for $400k, you'll have $406,500 left for another purchase. If you want to exceed that amount, you may, but you'll have to put 25% of the difference as a down payment, so a $450k next VA loan in this scenario would require a $10,875 down payment. The reason for this being the VA only guarantees 25% of the loan, so absent that guarantee, lenders require risk mitigation through an equity stake on the part of the borrower. If you want to restore full entitlement, a veteran may do so by selling or refinancing the previous VA loan into a different loan type or by paying off the loan. You must also apply to the VA for restoration of entitlement.


There are a lot of factors to consider when buying a home, but making sure to select the right loan product is crucial to the financial soundness of the decision. If you're a veteran, consider the VA loan - it's probably your best option.

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