First time buyers in Virginia have some great choices for low to no down payment home financing this year. The most popular home loans for first-time buyers is the Government backed programs like USDA Rural Housing, FHA and VA loans. Down below we will talk about the benefits of each loan options so you can best decide what works for you.
USDA Rural Housing Mortgage:
Many locations in Virginia are still considered “rural” – don’t assume this program is only for farmers and ranchers way out in the county. If you do choose to live in a less populated area, the 100% USDA home loan might be a great choice for you. The USDA Rural Development loan is the last remaining no down payment government-insured mortgage program for Virginia civilians. The USDA mortgage program is designed to help promote homeownership in less populated locations around Virginia.
Even many metropolitan areas have outlining areas that are qualified USDA-eligible property locations. Just outside of Richmond, etc still have USDA-approved zones. Interested homebuyers can click here to view USDA-eligible zones in their location. The USDA loan program will allow home buyers to borrow up to 101% of the home’s appraised value. In addition, homebuyers can roll in closing costs into their loan assuming their appraised value is high enough.
USDA RD Home Loan Advantages Include:
- 100% Financing: No money down, no down payment assistance, special grants, or first-time buyer class required.
- Low monthly mortgage insurance (PMI) is almost half as much as FHA loans.
- One-time USDA guarantee fee that is included in your loan ( just like FHA, VA)
- Owner-occupied homes only (no rentals/investments or vacation homes permitted)
- 620 min credit score required for USDA home loans.
- No loan amount limits.
- No cash savings requirements.
- Up to 6% seller contribution for closing costs allowed.
- 100% gifted closing costs allowed
- 30 year low fixed rate loan
- No Prepayment Penalty – move or sell anytime you choose.
To qualify for the USDA loan program, there are two main eligibility requirements that differ from the other government loan programs (FHA or VA loan program)
The Location of the house – The home must be located in a USDA-eligible designated rural area. Keep in mind, the seller of the property is not important, just where the property is physically located.
Income for the family – Each county has different USDA income restrictions. The income limit is based on many different variables, please contact us to learn more about the USDA income limits in your county.
VA Mortgage Loan For Military Buyers:
The VA mortgage is certainly the best choice for military service members and Vets that have VA loan benefits. The greatest advantage is the VA loan is 100% financing with no monthly mortgage insurance costs (PMI) Eligible VA borrowers who meet all of the VA loan requirements can get a mortgage with very little to NO money out of pocket. This accounts for the program’s popularity among those serving in the military.
Generally speaking, it is easier for borrowers to qualify for a VA loan compared to a conventional mortgage (one that is not backed or insured by the government). VA allows for lower credit standards and more flexibility overall. According to the Department of Veterans Affairs, the “VA guarantees a portion of the loan, and this backing allows the approved lender to provide you with more favorable terms.”
Like any other mortgage program, the VA loan has certain qualification requirements and standards that must be met. Let’s discuss the latest VA loan requirements for 2023 below.
VA Loan Eligibility:
You can think of 100% VA home loan qualification as a two-tier process. You must meet two sets of requirements, in order to qualify for such a loan. First, we have the basic eligibility requirements set forth by the U.S. Department of Veterans Affairs (VA). This department of the federal government manages the program and establishes the minimum requirements for VA loans.
Generally speaking, you are eligible for the program if you meet any of the following criteria listed below: If you are a home buyer and have questions, please call us 7 days week at ph: 800-743-7556 or just submit the quick “Information Request” form on this page.
- You are a veteran who served 181 days during peacetime (active duty).
- You are a veteran who served 90 days during wartime (active duty).
- You served at least 6 years in the National Guard or Reserves.
- You are currently on active duty and have served at least 90 continuous days.
- You were discharged from the military due to hardship.
- You are the un-remarried spouse of a veteran who died while in service or from a “service-connected disability.”
Service members who have received a dishonorable discharge are generally not eligible for the program. As you can see, the eligibility requirements for VA loans are fairly broad in range. They are meant to include most service members who have served in the military for a certain length of time.
Just remember the two-step system mentioned earlier. These are the minimum requirements established by the government. But the government does not actually originate VA loans. They are originated by approved lenders, like most other types of mortgages.
The government simply guarantees a portion of the amount being borrowed. So, in addition to meeting the basic eligibility guidelines above, you must also meet whatever VA loan requirements are imposed by the lender. Please read the VA lender requirements below.
Other VA Loan Requirements:
The Department of Veterans Affairs establishes clear and specific guidelines when it comes to length and type of service. But the information they offer about other VA loan requirements is somewhat vague.
For instance, the VA says “you must have suitable credit, sufficient income, and a valid Certificate of Eligibility (COE) to be eligible for a VA-guaranteed home loan.” But they offer no specific definition of suitable credit or sufficient income. This leaves borrowers wondering exactly what is needed: What credit score is required to qualify for a VA loan? How much can I borrow based on my income? What about my other debts, are they important?
These are two of the most important factors when it comes to qualifying for a VA loan.
VA Credit scores: As mentioned earlier, the Department of Veterans Affairs does not have any specific requirements for credit scores. But you can bet the mortgage lender does, and this can vary from one lender to the next. Most lenders are looking for a credit score of 620 or higher these days.
VA Debt ratios: The VA debt-to-income ratio, or DTI, is another important VA loan requirement. This is a comparison between the amount of money you earn (gross monthly income) and the amount that goes toward your fixed monthly expenses (recurring debts). Generally speaking, your total DTI ratio — including the house payment — should not exceed 48%. This requirement is imposed by the lender, not by the VA. So it varies from one mortgage company to the next.
Exceptions are often made for borrowers with excellent credit, significant savings in the bank, etc. Lender and brokers call these “strong compensating factors of the loan” Income may come from a variety of sources including but not limited to: base military pay, non-military employment, commissions, self-employed income (min 2-year history) retirement income, spouse’s income, and alimony.
VA Mortgage Documents: When it comes to VA home loan, documentation is key. The banks and lenders will request a wide variety of documents to verify your income and assets, as well as your current debt situation. They also need to verify and document your ability to repay the loan, in keeping with new lending requirements.
Documents needed for VA financing typically include the Certificate of Eligibility (COE), the Uniform Residential Loan Application (URLA), bank statements, tax returns and W-2 forms, and the DD Form 214 for veterans who have left the military, and a variety of standard VA documents. If you need assistance obtaining these documents, we can help. Just call us above 7 days a week.
VA Occupancy: The VA also has specific requirements for occupancy status. Simply put, you must use the home as your primary residence. You cannot use this program to finance the purchase of an investment or vacation property.
VA Loan Appraisal: Just like any other home loan program, the Department of Veterans Affairs requires all homes being purchased with a VA loan to undergo a property appraisal. This is when a licensed appraiser evaluates the home to determine how much it is worth in the current market.
Generally speaking, the house must be worth the amount you have agreed to pay for it, and it cannot exceed the VA loan limit for the county in which it is located. The house “must be adequate collateral for the requested loan,” according to the Department. Contact us to discuss the VA loan amount limits in your county.
Certificate of Eligibility or COE
Borrowers who wish to use a VA loan to buy a house must first obtain a Certificate of Eligibility (COE). This document is issued by the Department of Veterans Affairs. The borrower must then present the COE to the lender when applying for the loan. The COE essentially says that the individual meets the Department’s minimum eligibility requirements.
To obtain a COE, applicants must provide evidence of their eligibility. This can be done in several ways:
- Veterans who have separated from the military can provide a DD Form 214. It must show the character of service and the reason for separation.
- Active-duty military personnel, National Guard members, and reservists can provide a statement of service signed by the personnel office (typically) or the unit commander.
- Discharged members of the National Guard who have never been on active service can provide NGB Form 22 or 23.
- Discharged members of the Selected Reserve who have never been on active service can provide a copy of the latest annual retirement points statement and evidence of honorable service.
- Call us at ph: 800-743-7556 – we can assist you.
VA loans are available for loan amounts up to $4mil. This is a basic overview of COE documentation requirements. For more detailed information, visit the home loans section of the Department of Veterans Affairs website www.benefits.va.gov/homeloans
3.5% Down FHA Home Loan:
This great choice for many Virginia first time due to the low 3.5% down payment. The FHA mortgage provides several benefits, keeping in mind the budget difficulties of many homeowners who are considering purchasing their first home. Compared to most traditional mortgage loans, the FHA mortgage program facilitates the process for the applicant. Besides that the FHA home loan consists of a very low down payment (3.5%) which makes it a lot easier for homeowners that may have problems saving for the large down payment necessary by more common conventional loans. What are the most important advantages to choosing an FHA loan in Virginia?
- Secure fixed loan interest rates – One of the big advantages of your Virginia FHA loan is the benefit of having a fixed 15 or 30 year interest rate. In comparison to other regular loans in which the loan interest rates change, the rate remains the same for the total length of the loan. This time frame is typically for 30 years. Because of this provision, the consumer can budget their predetermined monthly installment ahead of time.
- Low down payment – The Federal government insures FHA loans, therefore the borrower has very minimal charges in the process. FHA mortgages require a minimum of 3.5% financial commitment from the applicant. The loan does allow for the home seller to pay for all closing costs, up to 6% which is frequently enough to take care of almost any property sale.
- Easy to Qualify – Prequalifying for a Virginia FHA home loan is rather straightforward. Because it’s the FHA that insures your home loan, the creditors and lending institutions make it feasible for anybody to qualify when they meet the base requirements. The primary components of qualifying are credit, earnings and employment history.
- Adjustable Rate Option – The FHA mortgage loan started due to the stretched budget constraints of first-time buyers. That’s the reason the FHA features an adjustable rate option for home buyers, which calls for a relatively low payment and interest rate.
- NO cash reserves required – In contrast to most conventional home loan programs, Virginia’s FHA home loan is a very tempting option for first-time homeowners who have little bank savings.
- Virginia first time buyers should find out what to expect before starting the FHA mortgage loan application process. Being prepared will always boost your opportunities to successfully get your loan mortgage approved. Here we list a few steps and some things to consider.
Before FHA Loan Application:
- Debt-to-income ratio: Careful study needs to be done at this point. Mortgage lenders differ on precise amounts, but a financial debt load that is greater than 41 to 48% is high risk for an FHA loan. You will need 2 years of continuous employment with no unexplained breaks in job history.
- Credit History: It is generally the small issues that may damage your consumer credit. Check your income source, and credit worthiness, together with rent history which may show up on a credit score. Get everything taken care of and work towards a spotless record.
- Credit ratings: Today a FICO score of 620 or better is required for the FHA loan for most lenders and banks. If you have had a bankruptcy or foreclosure, you will have to have maintained a perfect credit score since then (4 years and 5 years respectively) regardless of recent credit worthiness.
FHA Loan Application:
- Fill out the Info form at the top of this page and let us know what you need. It will allow the FHA mortgage professional to call you to discuss your primary goal. Subsequently, a full mortgage application will need to be completed that details everything about you, the borrower, which is used for determining whether you are qualified for a mortgage loan or otherwise. The interest rate and terms of the loan will also be identified largely by the data in your loan application form, credit scores, etc.
- In the event the application is pre-approved, you will get the disclosure records that are essentially initial loan documents that have all the details in connection with terms and conditions, loan rates, cost and mortgage payments of the loan.
- This has to be agreed upon and returned along with documents such as your bank account statements, IDs, personal references, etc., for validation purposes. Usually, these documents are prepped and readied before the loan application is submitted to the mortgage underwriter.
- The processor double checks all validating papers and may request absent documentation from the borrower if needed.
- When completed, the documents are sent to the underwriter.
- The underwriter will be sending a “conditions list” of any missing documents to the purchaser.
- After the buyer completes the requested items on the list, it is returned to the mortgage lender for final authorization. A closing date is then scheduled.
- Notice: When you are in contract on a residence, the entire loan closing process takes roughly three weeks to a month.
FHA also offers the HUD $100 down program for select Virginia HUD-owned properties only. Buyers interested in purchasing a HUD-owned home can read about the HUD $100 down program here.
We serve First time buyers in Virginia and throughout the U.S. Borrowers that have questions can call us, or submit the short information request form on this page for quick service.
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