VA Loan Requirements for 2020
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Military service members have more borrowing power than ever thanks to changes in VA loan requirements for 2020. However, VA loans may also come with higher costs, especially for buyers taking advantage of no or low down payment options.
Your VA loan eligibility
Military borrowers seeking a loan backed by the U.S. Department of Veterans Affairs (VA) will need to meet the same VA loan eligibility requirements from prior years. The fastest path to confirming your eligibility is to apply for a Certificate of Eligibility online.
You’re eligible for a VA loan if you served:
- 90 days of active-duty service during wartime
- 181 days of regular service during peacetime
- More than six years of service in the Reserve or National Guard
VA loan requirements
VA guidelines provide more qualifying flexibility than any other type of mortgage loan. Special safeguards are also in place to protect military borrowers from excessive lender fees. Here are the most recent VA loan requirements:
Entitlement. Each day of military service counts toward VA entitlement that you can use for a VA loan. The VA repays lenders if you default, or fail to repay the loan, based on how much entitlement you have. In most cases, you can borrow up to four times the amount of your basic entitlement without making a down payment.
Your certificate of eligibility usually lists a basic entitlement of $36,000 if you don’t currently have a VA loan. The bottom line: If you don’t have enough service time or entitlement, you probably won’t be eligible for a VA loan.
Credit score. The VA doesn’t set a minimum credit score for the loans it backs. However, many VA lenders set the minimum at 620.
Down payment. In most cases, VA loans require no down payment. However, you may need one if you currently have a VA loan and plan to buy a new home with VA financing, or if you need a jumbo VA loan. Jumbo loans are typically for expensive homes in areas where the loan amount is above local conforming loan limits.
Debt-to-income (DTI) ratio. VA home loan requirements recommend a DTI ratio (calculated by dividing total monthly debt by your gross monthly income) of no more than 41%. However, the maximum DTI ratio for a VA loan may be higher if you meet the residual income test.
Residual income. VA lenders use a residual income calculator to determine how much free cash you have each month after paying your monthly obligations from your after-tax income. The requirements vary based on your family size, the size of your home and where the home is located.
In some cases, lenders may approve a higher DTI ratio if you meet the residual income guidelines. The table below shows the residual income requirements for loan amounts above $80,000.
*Add $80 for each family member, up to a total of seven
Property requirements. Homes financed with VA loans must be safe, structurally sound and sanitary. VA lenders must use a VA-assigned fee appraiser to estimate the value of a home and the appraiser must note if any obvious repairs are needed. There may be special minimum property requirements depending on the location of the home (such as a termite report for homes in the Southeast, for example).
Closing cost guidelines. The VA imposes a 1% closing cost cap on VA loans to ensure lenders don’t charge exorbitant fees. In other words, lender charges for origination fees, credit report, flood certification and tax monitoring can’t equal more than 1% of your loan amount. However, the funding fee, which is charged to offset the cost of VA loans to taxpayers, is not included in this calculation.
Occupancy. You must live in the home you’re financing with a VA loan as a primary residence. However, the VA interest rate reduction refinance loan (IRRRL) can be used to lower the rate on a rental property with a current VA loan.
Big changes to VA loan requirements in 2020
No more VA loan limits in 2020
VA buyers can borrow beyond the $510,400 conforming loan limit in 2020 for most areas, giving them an edge in expensive housing markets. That also means eligible VA borrowers may qualify zero-down financing to buy, build or refinance a home above the $765,500 higher-priced loan limit.
The only catch: If you have an outstanding VA loan, you may need to pay it off to take out a larger loan amount.
2020 VA funding fee
One-time VA funding fees rose in 2020 for VA borrowers. However, the funding fee for the VA IRRRL remained the same. The table below shows the current fees, which vary based on the down payment amount, the purpose of the loan and whether the VA home loan benefit has been used before.
|Type of military service||Purpose of loan||Down payment||First-time user fee||Subsequent user fee|
|Active-duty, Reserve and National Guard||Purchase||0%||2.3%||3.6%|
|Purchase||5% to 9%||1.65%||1.65%|
|Purchase||10% or more||1.4%||1.4%|
|Cash-out and regular refinance||90% maximum LTV (for cash-out)||2.3%||3.6%|
|IRRRL||No equity required||0.5%||0.5%|
Veterans with a service-related disability may be eligible for a funding fee waiver. Information about the exemption can be found on your certificate of eligibility.
How to apply for a VA loan
The VA only guarantees loans offered by VA-approved lenders. Search for lenders using an online comparison tool, or through recommendations from a real estate agent, friend or relative.
Get loan estimates from at least three to five different lenders, ideally on the same day because rates change daily. Compare lender fees and rates to figure out which company offers your best deal. Once you’ve decided on a lender, have the following paperwork handy:
- Copy of your Certificate of Eligibility
- Copy of your DD214 discharge papers*
- Statement of active duty from a commanding officer*
- Statement of points or service (if National Guard or Reserve)*
- Pay stubs for the past 30 days
- Last two years of W-2s
- Most recent 60 days of bank statements
*Typically needed only if your Certificate of Eligibility is not available online
The VA loan process is similar to applying for a regular mortgage. The lender will analyze your income, credit history and assets to determine if you qualify. A VA home appraiser will be assigned to your file (unless you’re doing an IRRRL) and you’ll prepay the fee. Title work is reviewed to confirm you can take ownership of the home free of any claims and, if the paperwork meets VA guidelines, the loan will be cleared to close.
You’ll receive a closing disclosure three business days before closing, and schedule your closing with an escrow officer or attorney, depending on where you live.
FAQs about VA loan qualifications
Who qualifies for a VA loan?
Members of the military and eligible surviving spouses that meet the service requirements may qualify if they have enough VA entitlement.
Can I get a VA loan with bad credit?
VA guidelines allow borrowers with major credit events like a foreclosure or bankruptcy to obtain a VA loan after two years have passed.
Can you use a VA loan more than once?
Yes. Eligible VA borrowers can use home loan benefits to buy more than one home. When a VA-financed home is paid off, the borrower can restore their eligibility by filing and sending a VA Form 26-1880.
Do I need mortgage insurance on a VA loan?
No. VA loans do not require private mortgage insurance (PMI).
Can I buy a manufactured home with a VA loan?
Yes. A minimum down payment of 5% is required, but only if the home is permanently attached to land that you own. A VA loan for a manufactured home may come with more stringent credit and DTI standards.