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If you qualify for a U.S. Department of Veterans Affairs (VA) loan, then this option is likely your best choice for financing your home purchase because of the benefits this type of loan provides. The United States government designed this mortgage program to help active service members, military veterans, and certain surviving spouses purchase a home. 

Most people don’t realize that VA home loans are actually provided by private lenders, including Space Coast Credit Union (SCCU), with the VA guaranteeing principal portions of the loan. This allows lenders, like us, to offer loans with especially favorable VA mortgage rates and terms.

Learn more about our VA Home Loans here.
 

VA Loan Eligibility 

VA loans have specific eligibility requirements, which involve your length of military service or service commitment, the status of your duty, and your character of service. You can find guidance on specific eligibility requirements based on when you served and for how long on the national VA website; there are also parameters provided for National Guard and Reserve members. Note that the VA is the only organization that can officially validate your eligibility (more about that later). 

Here’s a quick overview of eligibility requirements:

• Active service members must serve 90 consecutive days of active duty during wartime or 181 days during peacetime.
• National Guard or Reserve members: In total, need more than six years of service.
• Spouses of someone who died in the line of duty or as the result of service is now on disability. 

As part of the application process, you will be asked to verify your service eligibility by providing a VA certification of eligibility (COE). The VA will appraise the home and ensure that risk levels are acceptable. If so, they will then guarantee the loan, which means they will protect the private lender against the total loss of the principal balance if the borrower defaults. 

VA Loan Parameters

VA Loans offer a platoon-full of benefits that are hard to pass up compared to other types of home loans. Here are more specifics about each of those perks and other things to keep in mind while you’re looking at your options. 

Down Payment

The VA does not require a down payment to be made on their guaranteed loans, but the private lender who grants the loan may. 

The good news is that according to the Veterans Benefits Administration, less than one in five VA loans involve a down payment. Most commonly, private lenders tend to require one if the sales price is greater than the home’s appraisal amount. Keep in mind, we offer 100% financing⁶⁶ on our VA Home Loans to eligible buyers.

In comparison, FHA loans come with a 3.5% down payment requirement while conventional mortgages often requiring at least 5% down.

VA Loan Rates

Rates for VA mortgages are often lower than a conventional mortgage. Like with other types of mortgages, rates fluctuate based on market conditions, so you’ll want to verify what they are when applying.
 

Debt-to-Income Ratios

Typically, VA home loans are more forgiving when it comes to debt. Someone can have a higher debt-to-income ratio (DTI) than what would be acceptable for a conventional mortgage. This means that, as an eligible VA loan borrower, you can have more debt as a proportion of your income and still have the potential to get approved for a mortgage loan. For example, a VA loan may get approved with a 41% DTI while a conventional one may require a DTI of no more than 36 percent. 

Closing Costs

Though the VA loan does require closing costs, it does limit the type of costs that are typically included as closing costs. Lenders can’t, for example, charge settlement fees or attorney service fees, and origination fees come with limits. For planning purposes, you can count on closing costs ranging from three to six percent of the loan’s principal amount, which will include a funding fee that goes to the Department of Veterans Affairs, but check with your private lender for specifics. 

Private Mortgage Insurance (PMI)

A significant benefit of a VA loan is that it doesn’t have a PMI insurance requirement. That’s because, in case of a default, the lender is already protected by the VA’s loan guarantee. With a typical conventional home loan, most buyers pay PMI insurance until they have 20% equity in their home. Lenders usually calculate the monthly PMI premium based on a percentage of the loan, typically ranging from 0.3% to 1.15%. 

Credit Score Requirements

Since the VA isn’t the institution funding the loan, they do not require a minimum credit score. But, the lender typically does have a minimum score requirement. In general, the requirement may not be as stringent as in some other cases. Typically, a FICO^® credit score of 620 is the baseline number to qualify. While other institutions adjust their VA rate based on your credit score, at SCCU, we offer the same low rate to all qualified VA homebuyers. 

If you’ve mostly paid in cash and need to build your credit, here is a helpful resource. 

Lifetime Benefit

If you qualify for the VA guarantee on your home loan, you can use it multiple times throughout your lifetime. You aren’t limited to a one-time use of the benefit. That said, the funding fee paid to the VA does increase after a person’s first use of the program. 

Assumable Loan

A great resale benefit of the VA loan is that it can be an assumable loan. This means that, if you used the VA loan to purchase your home and then later decide to sell it, the new buyer can simply take over the mortgage rather than having to get financing themselves. Keep in mind, the person who would assume the mortgage must qualify to take over the loan. 

History of VA Loans

The United States Congress passed the Servicemen’s Readjustment Act in 1944, during World War II, to provide benefits to eligible veterans—including, although not limited to, to the mortgage loan guarantee program. Since that time, the federal government has insured about 18 million home loans for veterans.

In 1970, through the Veterans Housing Act, the government removed any termination dates when applying for a guaranteed housing loan while also opening up the program for mobile home purchases. In 1978, the Veterans Housing Benefits Improvement Act was signed into law, further increasing US servicemembers veterans’ benefits for millions of people. 

In 1992, the loan guarantee program expanded even further through the Veterans Home Loan Program Amendments. The government extended eligibility to National Guard and Reserve members who have honorably served for six years or more. 

As a supplemental form of protection for veterans, through the Servicemembers’ Civil Relief Act enacted in 2003, active duty service members suffering from financial challenges could have their home loan interest rate frozen at the maximum of 6%. Although, when VA mortgage rates are low, this may not be a great benefit, it can be a significant one in market conditions where lending rates are higher.

In the past, there were limits on the dollar amount allowed on a VA loan: capped at $144,000. Now, eligible servicemembers, veterans, and survivors with “full entitlement” no longer have a limit. 

An eligible borrower has full entitlement if one of these three things are true:

• They’ve never used the VA home loan benefit before
• A previous VA loan was paid in full and the home was sold
• The property with the home loan benefit was foreclosed upon or had a compromise claim/short sale, and the VA has been paid in full

Qualifying for a Mortgage Loan

Although the VA provides plenty of benefits through its home loan guarantee program to make it easier for eligible veterans to qualify for a mortgage, homebuyers still need to meet certain guidelines. The VA, in general, has three guidelines that must be met:

• Stable income source
• Adequate credit score
• VA COE certification 

The first two are reviewed by the private lender that the borrower chooses. Overall, the applicant will need to demonstrate an ability to meet their financial obligations, including the new mortgage loan payment. As referenced previously, lenders can also set their own minimums for credit scores. Once a borrower receives prequalification from a lender, then the eligible borrower must submit the COE application accompanied by requested documents. This can include a statement of service or discharge papers.

Now, what about getting the best rates?

Getting the Best VA Loan Rates

First, VA mortgage loan rates are typically better than what you can get with other home loan types. The annual percentage rate (APR)—a metric that combines the interest rate charged with the annual cost of borrowing funds—may already be lower than with a traditional loan. Depending upon the amount borrowed, this can result in significant savings over the life of the loan.

Sometimes, sub-standard credit scores can prevent a loan from being approved. With some lenders, it can lead to a higher interest rate being charged. Remember that, at SCCU, we don’t increase your VA Home Loan rate because of your credit score. If the score meets the minimum qualification for approval, then you get the same rate as someone else approved for a VA loan with a higher score. 

If you need to improve your credit score to get a mortgage the credit bureau Experian lists some helpful ways to do so. No matter the year, improving credit scores always involves making your monthly payments on time. Setting up automatic payments from your savings or checking account can ensure that you don’t miss a forgotten payment. If any debt is in collections, it’s a good idea to get that taken care of as soon as possible. 

Helpful ways to improve your credit score:

• Pay down credit card balances, keeping them under 30% of your total available credit limit. Keeping your credit utilization rate at or below this percentage indicates that you have the ability to successfully manage your credit usage.
• Check your credit reports from all three main credit bureaus, which can be requested at AnnualCreditReport.com. Normally you can get a copy of each report for free annually. If you spot any errors on these reports, dispute them and ask for corrections. You will have to do this at all three credit bureaus, as they don’t share information with each other. 
• Because the average age of your credit history is a factor in credit score algorithms, it’s typically best to keep accounts open even after you’ve paid off a balance. 
• Limit how many times you apply for new credit, too, especially if the financial institution where you’re applying does a hard inquiry on your credit. Too many of these can cause a dip in your score.
• It can help to have a responsible mix of revolving credit (such as credit cards) and installment loans (such as a car loan and/or a personal loan). When you do this and continue to make all payments on time while managing your credit utilization rate, this indicates an ability to manage multiple types of credit well. 
• You can also ask your landlord to report your rent payments. Then, when you pay your rent on time, this can help to boost your scores. If your landlord doesn’t do this, there are services you can use; check to see their fees, terms, and conditions:
  • ClearNow
  • Cozy
  • PayYourRent
  • RentTrack

Protect yourself against fraud and identity theft, which can include avoiding public WiFi use and managing your passwords well. This is also something you can monitor when you get copies of your credit reports. Take a look at this article to understand common scams. 

As your credit scores increase, this can make it more likely that a lender will approve your mortgage loan application.

Create and Manage Your Budget

If a VA loan wasn’t approved because of a debt-to-income ratio (or credit scores that are less than ideal because of late or missed payments), then creating and managing a budget can help you get better prepared for another loan application and approval. 

To create a budget:

Step 1: Calculate your monthly income and then add up your monthly payments. These can include your rent, car payments, utilities, minimum credit card payments, personal loan and student loan payments, groceries, medications, and so forth. These are necessities (although paying down debt still makes good sense). 

Step 2: Then, in a second category, list what you spent on hobbies, eating out, subscriptions, and so on. This total is what you spend on leisure/luxury items. Also, list how much money you put into savings each month and/or how much more you’re paying above the minimum amount due on a monthly bill. 

Ideally, necessities take up no more than 50% of your budget with leisure spending being 30%, or less and savings/extra debt payments taking up the remaining 20%. If this is doable, then follow this budget. If your bills in the “necessities” category are more than 50%, work on paying down credit card debt, personal loans, and anything else that can be paid off. Reduce the amount in your “leisure spending” category, as needed, to pay down debt until you can get to a 50/30/20 proportion.

By leveraging these tips to improve credit scores and reduce debt, you can position yourself more effectively for a loan approval and manage your debt going forward. To help, here is a budgeting worksheet.

SCCU provides plenty of educational and financial wellness information to help our members reach their financial goals. Take a look at these in the financial wellness section of our website. They include:

• Financial calculators
• Fraud prevention center
• Home buying center
• Informational articles

One of the key benefits of choosing a credit union for your VA loan is how we also focus on providing educational resources to our members. More about credit union benefits later in this post!

Compare VA Loan Rates

Not all financial institutions offer VA loans, but many of them do. Check around to see what’s available, and be sure to compare APRs to ensure you’re getting the best deal for your situation. The interest rate is the percentage that will be charged on the principal balance of a loan while the APR represents the interest rate plus the costs of funds over a year’s time, which would include fees and other costs. 

If there is a bigger gap between one financial institution’s interest rate and their APR than you’re typically seeing, this indicates that this institution charges more fees. So, when you compare interest rates, also get more information about the fees charged, loan terms available, the type of customer service provided, and so forth. In other words, interest rates are an important thing to compare, but they’re not the only thing. 

Consider a Credit Union 

The goal of this post is to help you get the most favorable VA mortgage rates and overall loan terms possible, so it makes sense to explore credit union programs. Credit unions are owned by its members, not by stockholders who want to see increased profits. As a not-for-profit organization, a credit union continually looks for the best ways to offer value to its members. This typically means higher interest rates on savings and checking accounts and the lowest rates on loans, including mortgages. It typically means lower fees, as well. 

Credit unions are made up of members who pool their money together, typically to serve people in a geographic region or in a certain profession. At SCCU, Floridians can become members by opening a savings account and thereby getting “owning” a share of the financial institution. In addition, credit unions strive to promote financial wellness with a variety of helpful tools and resources.

Take a look at our website to find plenty of information about our VA mortgage rates and terms. For even more information, you can get in touch with us here by phone, Live Chat on our website, WhatsApp, or even schedule an in-branch appointment, and a Team Member will be more than happy to help. 

Ready to apply?

More About SCCU

Founded in 1951 as Patrick Air Force Base Credit Union, we’ve been strongly committed to helping military personnel and veterans from the get-go. We began with 28 members and $372 in assets. Now, more than 70 years later, we’re Florida’s third largest credit union with more than $7 billion in assets. We serve those who live or work in these counties. See all of our branch locations here. Our brand promise is Honest People. Trusted Products. Time Valued. 

We provide competitive VA loan rates and make our lending decisions locally. You can then benefit from free mobile/online banking, electronic loan closing options, and much more. If you’re looking for alternatives to a VA Home Loan, feel free to explore our Hero Home Loans (and you can compare those options here) and Affordable Housing Program too. 

VA Home Loans at SCCU

With our VA Home Loans, you can benefit from up to 100% loan-to-value financing⁶⁶ when buying a home with the same competitive rate regardless of your credit score. Because this is a VA loan, there is no PMI charged and all closing costs may be paid by the seller. In addition, through our SCCU HomeAdvantage® program, you can earn thousands of dollars in cash rewards. ¹⁹

SCCU makes it quick and easy to estimate your payment, and preapprovals are fast—available online or over the phone. We offer a variety of loan payment options and terms. Our mortgage team will review your application and provide you with the prompt, personalized attention you deserve.