Indiana VA Loan: How To Get A VA Loan in Indiana
If you have served in the armed forces, you can benefit from a VA loan when purchasing a home. The Department of Veterans Affairs has authorized lenders to offer loans based on their rules. This reduces the risks for the lender as the loan is guaranteed by the VA.
A VA home loan has many benefits if you are eligible and purchasing a home in Indiana.
The Advantages of Using a VA Mortgage in Indiana
There are many attractive reasons to consider using a VA loan if you qualify. The biggest advantages of this loan program include:
No Down Payment
If you want to you can finance 100% of the price of the home. As long as the home appraises for the expected value you can choose to avoid saving for a down payment.
Without the need to save for a down payment, it is easier and faster to buy a home. Saving a large down payment can take buyers years, but being able to finance 100% of the price of the home makes this program very attractive.
While the VA doesn’t impose a minimum credit score requirement, lenders often will. The lenders do this to minimize risk, but despite this, it is generally easier to qualify for a VA home loan even if you’ve had financial issues in the past.
Limits on Closing Costs
When you close on your home, there are many fees to pay. These can include lender origination fees, title insurance, appraisal fees, property taxes, and more. These can amount to a significant amount of money but are limited when you are approved for a VA home loan.
The VA limits closing costs to protect the veteran, with set limits on variable fees. The seller is also allowed to pay some of these closing costs if agreed in the purchase contract.
Qualifying for a VA loan
Eligibility for this mortgage program is based on service. The Department of Veterans Affairs defines that you are eligible if you meet one of the following criteria:
- Anybody currently serving in the Army, Navy, Marines, Air Force, or Coast Guard
- A veteran discharged with a minimum of 90 days of wartime service
- A veteran discharged with a minimum of 181 days of consecutive peacetime service
- A veteran discharged with a disability
- A veteran honorably discharged
- Someone who served in either the National Guard or the Army reserve
- Students in the U.S. Military, Air Force, Naval, or Coast Guard Academy
- Surviving spouse of a veteran who passed away
If you meet the criteria you will need to obtain a Certificate of Eligibility. This certificate from the Veterans Affairs office shows that you are eligible for a VA loan, and how much they will guarantee. It will give details about the length of service and type of discharge and show that you qualify for VA home loan benefits.
However, even with a Certificate of Eligibility, it doesn’t mean you are approved by the lender and you will still need to go through the mortgage approval process.
Before the lender approves your mortgage, the underwriter will want to see that your debt-to-income ratio isn’t more than 41%. If you had a gross income of $6,000 per month, this would mean debts of no more than $2,460 per month including mortgage payments.
If your debts are more than 41% of your gross income, approval can still be possible. Your lender may be able to help, but you might want to deal with some of your debts before you apply.
It isn’t enough to meet the debt-to-income requirements for just a few months, you have to prove this income is consistent. No matter where the income comes from, you will need to document it for 24 months or more. This should show that the income has stayed the same or gradually increased over this time.
VA Funding Fees
While you don’t have to worry about finding a down payment or paying private mortgage insurance, the VA does require a funding fee. With any mortgage, there is always a risk that the borrower will fail to keep to their repayment schedule, and if this happens the home could be foreclosed. This money is used to provide a guarantee to lenders should the borrower fail to meet their obligations.
The funding fee can be financed as part of the loan and will depend on the loan amount and the down payment percentage. With a down payment of 10% or more, the funding fee will be 1.25%. With a down payment of 5% or more but less than 10%, the funding fee is 1.5%. Down payments of less than 5% attract a funding fee of 2.15% for the first-time VA borrower and 3.3% after that.
VA Second-Tier Entitlement
If you want to buy a second property and have a clear reason for doing so (Permanent Change of Station, or a change in your family situation are two examples), or if you have previously defaulted on your mortgage, you might be able to be approved using your VA second-tier entitlement.
You will need to be up to date on your current mortgage, without late payments in the past 12 months. Your debt-to-income ratio will also be considered with both mortgage payments included in the debt.
The VA will allow your first home to be rented out which will improve your debt-to-income ratio, though there will need to be a formal lease and clear terms. The borrower also has to meet residual income requirements for the area and the size of their family.
When the VA approves a home loan they will guarantee a quarter of the loan amount. Eligible borrowers have a primary entitlement of $36,000, and they can also receive a secondary entitlement of $91,600. The VA loan guarantee comes out of this entitlement.
There is no maximum VA loan limit amount, so if you have the income and can meet their guidelines, you could in theory obtain any size loan. When you are buying a second property, this could mean that you do not have enough VA entitlement to cover a quarter of the purchase price of the second home you want to buy.
Types of Indiana Properties
You can buy single-family homes, townhouses, and new constructions using a VA loan. If you want to buy a condo, it has to be within a development that has been approved by the VA.
A loan through this program cannot be used to fund the purchase of rental property, you must also intend to live in the home. If you want to buy a second home in Indiana, it might be possible to use your second-tier entitlement.
Minimum Property Requirements
Since the VA is guaranteeing the home loan, they want to make sure that the property is worth the amount being paid for it. This requires a visit from a qualified VA appraiser who will inspect the property and ensure that it is suitable for living in.
The appraiser’s report will look at many aspects of the property to make sure the veteran doesn’t buy an unsuitable home that doesn’t meet the VA minimum property requirements.
The inspection will make sure that the home has suitable working utilities connected, that there is sufficient ventilation, that there isn’t lead paint used in the building, and that the property is safe and sound among many other factors they look at. All of this should mean that the home is safe for the owner to live in.
Streamlined Refinancing Options
When interest rates drop, you might find you are paying more interest than you need to on your mortgage. The VA offers an Interest Rate Reduction Refinance Loan or IRRRL, which allows borrowers to refinance with minimal paperwork required.
To take advantage of this you will need a good payment track record, without late payments for the last 12 months. The home has to be your primary residence and you must have a VA mortgage.
This streamlined refinancing allows you to lower your monthly payment or reduce the term and keep similar payments each month. Either way, it offers an easy way to reduce the amount of interest you will have to pay on your home loan.
If you don’t already have a VA home loan, you can refinance from a different type of mortgage. This won’t benefit from a streamlined service but you can still take advantage of the other features of the program.
The VA also offers a cash-out refinance option. If you have built up equity in your home, a cash-out refinance allows you to access these funds. Perhaps you have a debt you want to pay off or you want to go on a spending spree, whatever you need the money for doesn’t matter and you could improve the terms of your loan at the same time.
Summing Up How VA Loans Work in Indiana
If you meet the requirements to be eligible for a VA loan, they have very attractive terms. With no down payment requirement and no private mortgage insurance, this is an option that could allow you to buy a home sooner and with less to pay.