What Your VA Loan Can’t Pay For

Conventional loan or Veterans Affairs (VA) loan? For military members, the choice should be simple. VA loans help military members, veterans, and their families buy, build, or repair homes for personal occupancy. These loans are provided by private lenders such as banks and mortgage companies to make them simple and accessible. 

Discover the benefits of obtaining this type of loan and learn about VA loan limits for acceptable use of funds.

VA Loan Eligibility

VA loans are backed by the US Department of Veterans Affairs to support active duty and veteran military personnel and their spouses. However, recipients must meet criteria beyond simply having a military background. In particular, VA loans are reserved for:

• War veterans who meet length-of-service requirements of either 90 days during wartime or 181 days during peacetime.
• Active duty military personnel who served 90 continuous days.
• National Guard and Army Reserve members who total 90 days of active duty or six creditable years.
• Spouses of service members who either died in the line of duty or as a result of a service-related disability—including those reported as missing in action (MIA) or being held as a prisoner of war (POW). 

Each of these categories has specific requirements beyond what is stated. If you think you may be eligible, consult the VA website to access the most recent eligibility requirements and obtain your Certificate of Eligibility (COE) before applying for a VA loan.

Benefits of a VA Loan

As unconventional home loans, VA loans make buying a new home easier for military personnel. They’re guaranteed by the VA, creating minimal risk for lenders to ease up on their loan requirements. As such, you enjoy a broad range of benefits, including:

• No down payment, unless the purchase price is higher than market value.
• No private mortgage insurance, instead requiring a one-time fee equalling 1.25 percent to 3.3 percent of the loan amount, depending on your down payment.
• Foreclosure protection, as provided by the VA funding fee.
• Lower credit requirements, with no minimum score set by the VA.
• No VA loan limits, unless you have one or more active VA loans or have previously defaulted.
• No income restrictions, as the VA doesn’t set a maximum DTI, but does require lenders to scrutinize applications indicating anything over 41 percent.

Types of VA Loans

Not all loans are created equal. Ask yourself how you’ll use the funds to determine the right type of VA loan to apply for:

• Do I want to buy, build, or improve a home? Apply for a purchase loan.
• Am I trying to replace a current loan with a new one under different terms? Go for a cash-out refinance loan. 
• Do I need to reduce my monthly mortgage payments on an existing VA-backed loan? Pursue an interest rate reduction refinance loan (IRRRL). 
• Am I (or is my spouse) Native American and wish to buy, build, or improve a home on federal trust land? Inquire about a Native American Direct Loan (NADL).

How to Use Your VA Loan 

VA loan limits regarding acceptable use for funds center around your primary residence. You should keep several guidelines in mind as you apply for and begin using your loan:

✅ Ways you can use a VA loan:

Buying, building, or improving a home falls squarely within the established parameters of VA loans. You can put these funds toward a mortgage for a:

• Single-family home
• Condo in a VA-approved project
• Manufactured home or lot

Do you have a special interest in energy efficiency? Making changes or adding new features to improve your home in this regard also counts within VA loan limits.

❌ Ways you can’t use a VA loan:

If you aren’t planning on living on the property, you’ll need to look for alternative funding sources. VA loans are not intended for extraneous property costs, so you can’t use these funds for:

• A vacation or investment home
• A business property
• Unimproved land
• Closing costs and fees

A VA-approved appraiser must determine if your purchase meets the minimum requirements set by the VA.

Get the Keys to Your New Home with FFB Mortgage Lenders

For military members and their families, a VA loan can be the lifeline that makes owning a home not just a dream, but a reality. If you meet the eligibility requirements, it’s much more flexible to work with than a conventional loan, from little to no down payment requirements to virtually no VA loan limits. But remember: It should only be used for your primary residence. 

Ready to begin your homeownership journey? FFB Mortgage Lenders’ VA loan program can help provide the funds you need to make it happen. Take a tour of the benefits, and keep your eyes on our blog for more homebuying insights.