A Guide to VA Home Loans

An interview with Eric Wilson, Broker with RE/MAX Key Properties Broker and Mike Martin, Motto Mortgage Branch Manager, NMLS #296965

In honor of Veteran’s Day, we are highlighting a loan program for veterans, active duty military members and surviving spouses of military killed in combat: the VA home loan. This 100% financing program can be a good fit for eligible veterans and service members without sterling credit or the ability to make a 20 percent down payment.

“Veterans serve the highest honor by protecting our country and fighting for our freedoms. We find great honor in assisting our local heroes in their real estate journey.” – Eric Wilson, Broker

What is a VA home loan?
A VA loan is a $0 down mortgage option available to veterans, service members and surviving spouses of military killed in combat. VA loans can be issued by private lenders, including a mortgage company or bank, and guaranteed by the U.S. Department of Veterans Affairs (VA).

The VA home loan was created in 1944 by the United States government to assist returning service members purchase homes without needing a down payment or excellent credit. This historic program has guaranteed more than 25 million VA loans, helping veterans and active duty military members purchase or refinance a home.

How did you get interested in this type of financing?
Broker Eric Wilson: My first veteran home buyer reached out to me and had been pre-approved for a VA home loan by his lender. Since I hadn’t previously worked with a VA home loan I had a lot to learn and started educating myself about VA loans, their benefits, and some of the standards the VA has in place for the home. All of this helped me understand how I could best help my client purchase a great home. That was in 2018, and since then I’ve really enjoyed working with veterans and helping them find their next home.

Why do you feel this financing option is important for our local community?
Today, the VA home loan is more important than ever. Over the last decade in particular, VA loans have provided a lifeline for veterans and active military homebuyers facing higher credit score and down payment requirements needed for other types of loans. VA loans are a specialized loan product, well-earned through service, but they aren’t more difficult or cumbersome than other types of home loans.

Do all local lenders offer VA loans?
Most local lenders do offer VA home loans, but they may not all offer lending on the same types of homes. For example, some housing markets don’t have a lot of demand for mobile homes, while others have a large inventory of mobile homes for sale and a high demand.

A lender who doesn’t see the value of VA home loans on mobile homes or manufactured homes may not offer them. Some housing markets don’t support construction loans, and others don’t support VA loans to buy condo units because the inventory simply is not there.

Is there a maximum cap on the loan amount of a VA home loan?
Eligible veterans, service members, and survivors with full entitlement no longer have limits on loans. This means you won’t have to pay a down payment, and we guarantee to your lender that if you default on a loan, the VA will pay them up to 25% of the loan amount.

Can you build a home with a VA home loan?
VA home construction loans come with a unique set of challenges making it difficult for qualified borrowers to find lenders willing to do a true $0 down VA construction loan. While the VA insures a portion of each loan, it’s up to individual VA lenders to determine what kind of loans they’ll issue. And the level of risk in new construction often causes many VA lenders to shy away. What’s more common is getting a construction loan from a builder or a local lender and then refinancing that into a permanent VA loan.

Are there any special restrictions that come with a VA home loan?
There are no restrictions to where you buy or for how much. The Department of Veterans Affairs does not have a limit to how much you can borrow but, keep in mind, you do still have to qualify with proof of income and employment.

Can you use a VA home loan for a second home or rental property?
Because VA loans are intended to help people purchase or refinance a primary residence, you cannot legally purchase a home with a VA loan that you don’t intend to occupy for the majority of the year.

Because VA loans are intended for the purchase of primary residences, you cannot buy a property for the express purpose of having it be a rental property. However, you can convert that property into an investment property if you move at some point. If the property is being converted, it’s a good idea to talk to your lender.

Are spouses of the veteran eligible for this home loan benefit?
To be eligible for a VA loan, you or your spouse must meet the basic service requirements set by the Department of Veterans Affairs (VA), have a valid Certificate of Eligibility (COE) and satisfy the lender’s credit and income requirements.


 Are there fees associated with this loan that buyers should be aware of?
The VA funding fee is a one-time payment that the Veteran, service member, or survivor pays on a VA-backed or VA direct home loan. This fee helps to lower the cost of the loan for U.S. taxpayers since the VA home loan program doesn’t require down payments or monthly mortgage insurance. Qualified disabled veterans are exempt from the funding fee.

Can you use gifted money for the down payment or closing costs?
You can use gifted money toward your closing costs. The VA loan program does not require any down payment. That means there’s no minimum borrower contribution. However, some home buyers choose to make a down payment with VA loan anyway, and you’re free to use a cash gift to do so.

What types of properties can be purchased in Oregon with a VA home loan?

  • An existing home, or a condominium or townhouse in a VA-approved project. For condos, the entire complex must be approved by the VA before the buyer can receive a loan for one unit.
    A multi-unit property (up to four-plex), provided the buyer occupies one of the units. If more than one veteran is buying, then one additional unit can be added to the four. Additionally, if rental income from the property dictates whether or not the veteran can qualify for the loan, then the veteran must show that he or she has the background needed to be a successful landlord and have enough cash reserves to make payments on the property for six months without rental income.
  • A manufactured (mobile) home. Finding a lender to finance these types of homes can be difficult because they’re considered depreciating properties, although modular homes are more likely to appreciate – making finding a lender slightly easier. Additionally, manufactured homes must meet certain conditions, like being affixed to a permanent foundation.
  • A new construction. However, builders, plans, and building sites must be VA-approved, require several inspections, and the builders must provide at least a one-year warranty. Also, many lenders are hesitant to accept zero down financing for new constructions. Alternatively, veterans can obtain a non-VA Home Loan and refinance the home with a VA Home Loan once the building is complete.

Can you refinance later if you purchase a home with a VA loan?

Two main programs help VA borrowers refinance to a lower rate — the VA Streamline Refinance, also known as the Interest Rate Reduction Refinance Loan (IRRRL), and the VA Cash-Out Refinance.

A Streamline Refinance allows veterans who currently have a VA Loan to refinance into a lower interest rate, reducing monthly mortgage costs. Streamline refinance loans feature little paperwork and often require little-to-no costs out of pocket. Borrowers can roll closing costs into their overall loan amount. Some homeowners can also secure a Streamline refinance without an appraisal.

The other popular option, known as the Cash-Out Refinance, allows borrowers to tap into their home’s equity and use it as cash. This type of refinance is available to any qualified veteran homeowner, regardless of whether they have a FHA, USDA or conventional loan.

Would there be times when it might be better to finance a home with a more traditional loan?
The primary benefits of VA loans are $0 money down, no PMI, flexible credit requirements and highly competitive rates.

The VA loan might be a good fit for eligible veterans and service members without sterling credit or the ability to make a 20 percent down payment. Conversely, borrowers with great credit and enough cash on hand for a large down payment may find that a conventional loan is a better fit. Another thing to consider is that conventional loans do not have a funding fee. Subsequent uses of the VA benefit can get more expensive and depending on the loan amount, the funding fee may make a conventional loan a better long-term financial fit.

What is one piece of information you’d give to a buyer using this type of loan?
Be sure to get pre-qualified with your lender and know your budget and the requirements of the VA loan prior to looking for homes. This will save you time during your search and ensure you are ready to make a great offer once you do find your next home.

Are VA loans good for jumbo loans?
Absolutely yes. With the current real estate market and price increases like we’ve seen locally the last year, we have been able to secure financing on jumbo loans through the VA home loan program. Something else to consider, VA jumbo rates are frequently much lower than traditional jumbo loans.

I have 20% for a down payment. Does VA funding still make sense?
Maybe. The primary benefit of VA financing is 100% financing without monthly mortgage insurance.  VA financing frequently is the optimal solution with 20% down but not always.  Borrowers with a 20% down payment are best served by reviewing conventional and VA options with their loan officer to determine the best fit.

Is the VA funding fee the same percentage on all loans?
The funding fee calculation is a percentage of the loan amount has several variables.  The 2 most significant are down payment and if it is a first or subsequent use of your VA loan benefit.  While a down payment is not required a 5% down payment will noticeably reduce the funding fee.  A subsequent use of the VA loan benefit can have a significant impact on the funding fee with less than 5% down or on a cash out refinance.

Am I required to pay the funding fee out of pocket?
The funding fee is financed in addition to the base loan amount.

Does VA determine the interest rate?
No. The interest rate is determined by the lender and based on the current economy and market conditions, as well as your unique financial situation and level of risk. Therefore, it is very important that you choose a reputable lender that is interested in securing you the best available rate for your long-term investment.

Where is the best place to go for more information?
The Department of Veterans Affairs is a great resource to learn more: va.gov.

I qualify for a VA loan and I’m ready to buy a home. What’s my next step?
If you are interested in beginning a home search using a VA loan, reach out to Eric Wilson at RE/MAX Key Properties. An expert on the local market and the VA loan program, Eric has acquired valuable tools to help you achieve your real estate goals.

If you are ready to begin the process of securing a VA home loan, we recommend Motto Mortgage Branch Manager Mike Martin NMLS# 296965. His knowledge and guidance will ensure you are well-represented and make a smart financial decision.

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Broker Manager | NMLS #296965
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