First-Time Homebuyer VA Loan: 100 Percent Financing for Your First Home
For a first-time homebuyer, a VA loan takes away some of the biggest hurdles to becoming a homeowner. See how it works.
For a first-time homebuyer, a VA loan takes away some of the biggest hurdles to becoming a homeowner. See how it works.
If you're a first-time homebuyer, a VA loan can be a godsend.
Saving up a down payment plus closing costs can be challenging, even if your credit score is high enough to qualify for a mortgage.
But first-time homebuyer VA loans eliminate some of those hurdles, thanks to the 0% down payment* requirement and flexible credit score guidelines.
Even better, there are no loan limits for VA borrowers who have full entitlement. And if you’ve never used a VA home loan before, that includes you.
So if you’re eligible for a VA loan, you may be able to buy a home with the best mortgage option in town.
How do VA loans offer so many advantages? Well, the U.S. Department of Veterans Affairs (VA) insures part of these loans via the VA Guaranty.
That enables VA-approved lenders to give mortgage loans to borrowers who might not qualify for other loans due to a low credit score and limited savings available for a down payment.
The VA loan program was created to enhance the lives of military servicemembers, both active-duty and veterans, and to honor their service.
By providing an affordable path to homeownership, these loans enable servicemembers and eligible surviving spouses to create wealth and stability for their families through home equity.
All loan programs have their pros and cons, but for a first-time homebuyer, the VA option is hard to beat.
First-time homebuyers won’t find this combination of benefits elsewhere.
USDA loans, which are also government-backed, are also 0% down payment loans. However, they require an upfront and ongoing mortgage insurance premium (MIP). Homebuyers must meet certain income and location limits to qualify. VA loans can be used anywhere, and there are no income restrictions.
You can avoid mortgage insurance with a conventional loan — but only if you put 20% down. If you don’t have that much saved, you’ll owe private mortgage insurance (PMI) until you have 20% equity in the home. A conventional mortgage also requires a 620 minimum credit score and at least a 3% down payment.
All loan programs have their pros and cons, but for a first-time homebuyer, the VA option is hard to beat.
First-time homebuyers using VA loans will likely have full entitlement benefit available. Entitlement benefit refers to how much you can borrow based on the VA guaranty and homebuying prices in your area.
Borrowers with full entitlement typically fall into one of two categories:
With full entitlement, you can buy a home with no money down and you won’t be constrained by VA loan limits. That means that there’s technically no cap on the amount a lender can let you borrow.
But you still have to meet the VA’s, and the lender’s, borrower eligibility requirements. Lenders will look at your credit score, income, DTI, and savings to determine how much you can afford in a mortgage payment. They’ll decide how much you can borrow based on those factors.
Your Certificate of Eligibility from the Department of Veterans Affairs tells lenders your level of entitlement. If you don’t already have a COE, your lender can look it up for you.
Only military members and eligible surviving spouses can qualify for a first-time homebuyer VA loan. This includes veterans and active-duty servicemembers of all branches of the military, including the Navy, Marines, Army, Air Force, the Reserves, and the National Guard.
If you’re a first-time homebuyer who qualifies for a VA loan, there are a lot of good reasons to take this option, particularly the no down payment feature.
But your status as a military servicemember doesn’t mean you’re limited to VA loans. You may also qualify for a USDA, FHA, or conventional loan, and all of them have different benefits.
VA loan underwriters look at the bigger picture of your financial life. They weave together your income, DTI, and credit score to assess your ability to make your monthly payments.
If you have a weak thread — let’s say your credit score is a little low, for example — you could still get approved if you also have a low DTI and solid income. Or, if you have money available for a down payment, putting some cash down can also boost your chances of qualifying. Even if you put a small amount down, it reduces the amount you need to borrow, which lowers the lender’s risk.
Your best bet is to get preapproved*** with a VA lender. A loan officer can review your entitlement and your finances and will explain all of your options to you.
Related: 10 Questions to Ask VA Home Loan Lenders Before Applying
Can you use a VA loan as a first-time homebuyer? Absolutely. In fact, a VA loan can be a great option as a first-time homebuyer since you don’t need a down payment and therefore need less money saved before you buy your new home.
Is it harder to buy a house with a VA loan? Not necessarily, but there are a few VA-specific hurdles to know about. You must meet the VA eligibility guidelines and have entitlement benefit available. The home must also be appraised by a VA-approved appraiser to make sure it meets the program’s minimum property requirements.
How can veterans buy a house? Veterans can use any home loan they qualify for, including the VA home loan program. A VA loan helps qualifying borrowers achieve their homeownership goals with no down payment, no loan limits, and no ongoing mortgage insurance.
But veterans can find other quality loan products out there, too, and they should choose the best loan program for their needs. For example, a veteran with excellent credit who wants to finance an investment property will likely need a conventional loan, as VA financing is only available to primary residences.
Buying a home with no money down, an average credit score, and no mortgage insurance — it’s the perfect recipe for many first-time homebuyers, and it’s one you won’t find outside the VA home loan program.
If you meet the VA’s eligibility requirements, a first-time homebuyer VA loan could be your best loan option.
*A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. Fairway is not affiliated with any government agencies. These materials are not from VA, HUD or FHA, and were not approved by VA, HUD or FHA, or any other government agency.
**Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.
***Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal.
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.