Veterans of the U.S. military, with anything other than a dishonorable discharge, are eligible for loans insured by the U.S. Department of Veterans Affairs (VA). Instead of making direct mortgage loans to veterans, the government allows private mortgage lenders to issue VA mortgages to those borrowers. To become an approved VA lender, mortgage companies must follow guidelines set by the VA, including a promise to verify that borrowers meet VA credit score and income standards.
Although the VA doesn't lend directly, it guarantees VA loans. This means it will repay lenders if the borrower defaults. That guaranty, in turn, gives private lenders an incentive to offer VA mortgages with attractive terms.
Finding a VA lender is easy. There are many VA home loan lenders ready to service veterans across the country. But not all VA lenders are created alike.
VA Loans By The Numbers
VA Purchase Loans79,000
Cash-out Refi Loans28,000
Average VA Refinance Amount$235,500
Cash-out Refi Volume$6.5 billion
IRRL Loan Volume$10.4 billion
Source: U.S. Dept. of Veterans Affairs, Q1 of FY 2015
Finding a VA Lender
It's best to find a lender experienced in VA loans. The requirements to qualify as a VA lender are low, so checking references and finding a VA-experienced lender are keys to success. You don't need to know the details of exactly how a lender qualifies for VA lending. We include a brief glimpse behind the scenes in VA lending so that you can find a well-qualified lender.
One way to ensure a lender is well versed in VA loans is to learn if the company, individual loan officer, or both are qualified to take part in the VA Lender Appraisal Processing Program or LAPP. The LAPP is designed to speed up the time it takes for the loan to close. LAPP allows VA-authorized lenders to receive and process appraisal reports directly from an appraiser, without the involving the VA.
For a VA home loan lender to take advantage of LAPP, the lender must have a full-time appraisal reviewer on staff, and that person must have a minimum three years' of qualifying experience to perform administrative appraisal reviews when underwriting VA loans. In addition, the VA home lender must show it has an effective quality control system in place to ensure the accuracy of the staff appraisal reviews.
The VA puts its lenders into three categories:
The VA considers lenders who are already subject to FDIC or similar federal oversight as Supervised Lenders. These lenders tend to be banks and credit unions. Supervised Lenders have the authority to close VA-guaranteed loans without the approval of the VA, with some exceptions. There are no VA lending experience requirements to become a Supervised Lender.
Nonsupervised Automatic Authority lenders can underwrite the loan and order a VA-approved appraisal. To attain this designation, a lender must have:
Two or more years of active VA origination experience, and
Originate and close 10 or more VA loans within the past two years
Alternatively, originate and close more than 25 VA loans
A VA lender with Nonsupervised Automatic Authority designation means the lender has a minimum amount of experience in VA loans.
Where to Find a Great VA Lender
Finding a VA loan is easy with our handy lender finder tool. You can search for nearby lenders, ones with great rates, and lenders who have the fewest complaints.
VA Lender Agents
You can also use a third-party originator or mortgage broker to obtain a VA loan. The VA calls these independent loan officers agents. Agents work with a sponsoring lender who handles the mechanical, back-office tasks necessary to close a mortgage.
Agents can be excellent loan officers, especially if you have unique challenges in your loan application the loan officer has seen before. Be sure the agent and his or her sponsoring lender have experience with VA loans and seem to meet the necessary requirements to close your loan successful.
Buying a home will likely be one of the largest purchases you will make, so it's important to work with an experienced VA lender. Undoubtedly, you will encounter bumps along the way, thus you want a lender who solves problems and responds to your needs throughout the process.
How to Select a VA Lender
Buyer beware when applying for a VA mortgage. A lender may say it is approved to issue VA-backed home loans, but that doesn't mean the loan officer assigned to you will be a VA expert. It's one thing to call yourself a VA-approved lender and an entirely different thing to be well versed and experienced in VA loans. Do your due diligence and ask the potential lender qualifying questions.
8 Questions to Ask a Potential VA Lender
How long has your company processed VA loans?
How long have you been a loan officer?
How many VA loans have you closed?
How long do you estimate it will take to process my VA loan application?
Will I be assigned one loan officer or will I work with a team of loan officers?
How will you communicate with me and how quickly can I expect a response?
Are you, or the company you work for, a Lender Appraisal Process Program lender?
Is the lender an automatic non-supervised lender?
Applying and getting approval for a mortgage can be complicated. For a VA loan, it requires a lender and/or loan officer that not only understands how conventional mortgages work, but also the inner workings of a VA home loan. Take heed. Communication is key. Seek out a lender who is willing to explain both the process and requirements for your loan. This will help you determine the lender's level of experience. If the loan officer or mortgage firm isn't adequately experienced, a mistake could result in a denial of your VA loan.
If the VA lender doesn't have two or more years' experience, refuses to answer any or some of the questions, makes you feel uncomfortable, or can't explain in laymen terms how the process works, those are red flags and you should look elsewhere. Also, if the mortgage lender intends to assign you to a team of loan officers instead of one, it's a good idea to continue to shop around. A responsive and informed VA mortgage lender is extremely important to make the process go as smoothly as possible.
Questions & Answers About VA Loans
Are VA loans more expensive or cheaper than non-VA loans?
VA loans have many benefits. One benefit is a VA loan can be cheaper than conventional loans. There are two reasons for this. First, they do not require a down payment, which reduces the amount you have to bring to the table at closing. Second, VA loans don't require private mortgage insurance or PMI, which is typically for borrowers who are borrowing more than 80% of the total value of the home. The PMI cost ranges from 0.5 percent to 1 percent of the total loan amount. There are closing costs just like with a conventional mortgage, but the Veteran Administration regulates closing costs, and the maximum amount VA borrowers are allowed to pay. VA oversight keeps costs under control, and usually less than a conventional mortgage.
What are the VA loan limits?
Starting in 2020, the VA no longer caps how much it will insure. That's a change from 2019, when the VA loan limit for most of the U.S. was $484,350. That doesn't mean every veteran can borrow millions; the VA still need to show sufficient income to pay the mortgage.
Can I refinance a VA loan?
Homeowners can lower the interest rate on their existing VA home loan, thanks to the Interest Rate Reduction Refinance Loan (IRRRL). With this program you are eligible to refinance your VA mortgage into a VA loan with a lower interest rate, reducing the amount you pay each month. You won't have to go through the appraisal or credit underwriting process again, and the refinance can be done without upfront costs. The loan costs can be rolled into the new loan, or be covered by paying a bit of a higher interest rate to cover the loan expenses. The IRRRL can also be used to refinance a non-VA adjustable rate mortgage into a VA fixed-rate loan. Learn more about refinancing your VA home loan.
Are VA loans assumable?
In an environment where interest rates are high, an assumable mortgage is particularly attractive because it means that when you sell your home, the buyer can take over or assume your mortgage and keep the rate you were paying on the VA mortgage. Although it may not be as an attractive feature in a low-interest rate environment like today. Certain VA mortgages are assumable. For the VA loan to be assumable it must have closed prior to March 1, 1988. For loans closed after 1988, the lender must approve it. The buyer doesn't have to be a veteran to assume a VA mortgage, but they do have to meet the income and credit quality standards. What's more, you'll lose the remaining entitlement benefits, which is the remaining number of VA mortgages you can receive, if a non-veteran assumes the VA mortgage.
When can lenders require down payments in VA loans?
One of the biggest benefits of a VA home loan is that you don't have to have a down payment to qualify. Oftentimes, the lack of a down payment is the main reason why many people don't qualify for a mortgage. A VA loan doesn't require a down payment because the VA acts as the safeguard for the lender. If you default on the loan, the VA is on the hook and must repay the lender. There is one exception to the rule. You'll have to come up with a down payment if the sales price exceeds the appraised value.
Do VA loans take longer to close than non-VA loans?
How long it will take a VA loan to close is one of the top questions home buyers want answered. Closing times vary depending on each buyer's situation. VA loans take 30 to 45 days to close, which is similar to the time it takes to close a non-VA loan. Of course, VA loans take longer if the application is incomplete, if the employer is slow in returning the employment verification form, or if other challenges come up along the way. In January of 2015, it took an average of 39 days to close a VA loan, according to mortgage software company Ellie Mae. This is the same as the closing time on a conventional mortgage.