Securing a home loan can be an intimidating part of the home-buying experience. For veterans, active-duty service members, and eligible surviving spouses, the VA loan program is here to help. The Department of Veteran Affairs offers these individuals VA home loans to help make getting a home more manageable and affordable.
With so many different home loan options available to homebuyers, understanding each type can help you determine which option is the best for your situation. If you’re eligible for VA loans, here’s everything you need to know about getting a VA loan in Tennessee.
VA Home Loan Benefit for Tennessee Borrowers
All home loans offer benefits to borrowers, but for those who qualify for VA home loans, the benefits are greater than those of conventional loans. For a veteran, active-duty service member, or surviving spouse, the benefits of VA home loans can often make the difference between buying a home and not.
No Down Payment Required
One of the biggest benefits of taking out a VA home loan is that no down payment is required. Conventional loans require a down payment, so if you happen to qualify for both or paying the down payment is a hurdle, then going with a VA loan might be the better idea.
Since most down payment requirements are around 3-5%, this can be a huge obstacle to buying a home. When you take out a VA loan, you can finance 100% of the value of the home.
The benefit of not having to pay for a down payment can end up saving you thousands of dollars in the beginning. This not only allows you to become a homeowner more easily, but you can also take that money you’d use as a downpayment and put it elsewhere once you officially own the home.
No Private Mortgage Insurance Premiums
Besides not paying a down payment, you don’t have to worry about private mortgage insurance (PMI) with a VA loan. PMI adds a substantial monthly payment to the homeowner’s monthly expenses. If you can afford it, that’s great, but it can put some buyers in a sticky financial situation.
PMI is generally required when borrowing a conventional loan, and the down payment is less than 20% of the property’s value. With a VA loan, since you’re not required to make a down payment, you can completely avoid paying PMI premiums and over-exerting yourself financially in this sense.
Competitive Interest Rates
While you can’t get a home loan without an interest rate, taking out a VA loan will help you get a competitive interest rate. When compared to conventional loans, VA loans tend to have lower interest rates or at least more manageable rates.
Since VA loans are government-backed, lenders face a reduced risk, allowing them to offer better terms to borrowers. Over the course of the loan term, the interest rate will usually be lower than what a loan officer with a conventional loan can offer, making home ownership far more accessible to veterans, active military personnel, and surviving spouses.
Flexible Credit Requirements
One of the main requirements when taking out any loan, including home loans, is your credit score. With VA loan benefits, you don’t have to worry about this factor as much. When trying to buy a home in Tennessee, your credit score isn’t a huge factor. It matters, but not as much as you might think.
VA home loan benefits mean that they’re far more flexible with credit score requirements than when you try to take out conventional home loans. When you don’t have to stress as much about your credit score, you can focus on saving for your monthly mortgage payments and not on whether or not you’ll be approved for a VA loan in Tennessee.
Just because the Department of Veterans Affairs is more flexible with its credit score requirements doesn’t mean you won’t be scrutinized. Ideally, you’ll have a credit score over at least 620 to be eligible for a VA loan in Tennessee. In some situations, they might be okay with a lower score. Here at Pride Lending, we do work with lenders that go as low as a 500 credit score requirement.
No Prepayment Penalties
While you might think it’s a good thing to pay off your loan early, when prepayment penalties are involved, it might not be. The positive thing is with VA mortgage programs, you don’t have to worry about these fees.
If you’re in a position where you can pay off your loan early, the VA won’t punish you. You can easily make addition payments to the principal of the loan to pay it off early, helping you achieve financial freedom.
Assistance for Struggling Borrowers
Borrowers who are financially struggling get additional assistance through cooperation with their loan servicer and the VA. There are several options available to help borrowers, including:
- Repayment plans – You and your loan servicer create a repayment plan to address late payments.
- Special forbearance – You agree with the lender to suspend or reduce your monthly payments for a limited period, usually three or four months.
- Interest Rate Reduction Refinance Loans – IRRRLs are refinancing VA loans created to reduce your monthly mortgage payment, either through changing your term, interest rate, or other conditions.
- The Veterans Affairs Servicing Purchase (VASP) program – If other methods do not work, a borrower may be eligible for the VASP. In this case, the VA buys your modified loan from your servicer, letting you keep your home.
Eligibility Requirements for Tennessee VA Loans
Not everyone will qualify for a VA loan. While it’s true that not everyone will qualify for a conventional loan as well, the VA has far more restrictions on initial qualifiers.
The requirements to qualify for a VA loan can vary depending on military status, such as whether you’re a veteran, active duty service member, or qualifying family member. For veterans, National Guard members, Reserve members, and eligible surviving spouses, you will face these requirements:
- A minimum of 90 consecutive days of active service during wartime
- A minimum of 181 consecutive days of active service during peacetime
The main requirement for obtaining a VA loan is obtaining a Certificate of Eligibility (COE). The COE shows a VA-approved lender that you meet the service requirements set forth by the Department of Veterans Affairs. You’ll need to provide service documentation to get the COE, like a DD-214 for veterans or a statement of active duty for active military.
Besides the COE, veterans, active military, or eligible surviving spouses will need to provide the following to determine eligibility in Tennessee:
- Proof of income
- Proof of Tennessee residency
- Credit history
- Proof of service
VA Loan Limits and Funding Fees
Most lenders have loan limits in place, but in the last few years, the VA has removed them for many veterans. Not every veteran will qualify for no loan limit and funding fees, but they make it possible to finance a new home without dealing with a maximum home amount.
Not having maximum loan limits allows home buyers to maximize their VA loan benefits. You can take advantage of your entire VA loan limit without worrying about the cost of the home.
That being said, buying a home with VA loans comes with funding fees. The funding fee helps offset the cost of the VA loan program to taxpayers. This specific fee is based on factors like the size of the down payment and the service fee.
For example, a first-time VA loan borrower might pay a 2% funding fee based on the subsequent loan amount. It might increase if there’s no down payment required for the borrower. Working with a qualified VA loan officer will help you understand what your funding fee is and what to prepare for.
VA funding fees for 2024 amount to:
- 2.15% for a down payment between 0% and 4.99% (for first-time VA loan users)
- 3.3% for a down payment between 0% and 4.99% (for all subsequent uses)
- 1.5% for a down payment between 5% and 9.9%
- 1.25% for a down payment of 10% or more
Some borrowers are exempt from paying funding fees:
- Veterans receiving or eligible for service-connected disability compensation
- Borrowers with pending pre-discharge claims
- Borrowers receiving Dependency and Indemnity Compensation
- Purple Heart recipients
Types of VA Loans in Tennessee
Many people think there’s only one type of VA home loan, but there are several that benefit different home buyers. Understanding the different types will help you determine which one is the best for your situation.
VA Purchase Loan
The VA purchase loan is the most common VA loan. It is used to buy a new home. This is the type of VA loan where you can purchase a home without a down payment or PMI insurance but still have very competitive interest rates.
These VA loans are ideal for veterans and service members who are trying to buy their first home or are using their VA entitlement for the first time.
VA Streamline Refinance Loan
The VA Streamline Refinance Loan, also known as the Interest Rate Reduction Refinance Loan (IRRRL), is designed to help veterans, active duty survival members, and surviving spouses refinance their existing VA loans.
Going with a VA Streamline Refinance Loan is a great option that doesn’t require excessive documentation or appraisal. It sometimes does require a home appraisal, but it’s not common. These VA loans are a great option for those who want to find a way to reduce their monthly mortgage payments and interest quickly.
VA Cash-Out Refinance Loan
Then there’s the VA Cash-Out Refinance Loan. These VA loans help eligible borrowers refinance their current mortgage, like the IRRRL, but while taking out cash from your home’s equity.
Many people take this cash to pay for things around the house. Homeowners can use the cash they receive for fun or practical home improvement projects, funding education for themselves or a spouse, or paying off any debts they might have.
The VA Cash-Refinance Loan has eligibility restrictions like any other VA loan – to be eligible for this type of loan, you have to be a veteran with an existing VA loan or a loan that can be refinanced into a VA loan. If you are, it can be an effective way to take advantage of your home’s value to help with whatever your financial goals are.
The VA Loan Process
- Get your COE: The Certificate of Eligibility verifies a borrower’s ability to get a VA Loan. Pride Lending can help you obtain your COE, making the process seamless.
- Check Finances: Determining a budget is crucial to determining how much house you can afford. Examine how much money you have after necessities, such as utilities. An expert at Pride Lending can help you learn more about your debt-to-income ratio and finances.
- Choose a Lender: Work with a lender like Pride Lending, a VA loan specialist. Your lender must understand how VA loans work, can guide you through the requirements, and maximize your benefits.
- Shop for a House: Next, it’s time to find a house you’d like to purchase. Work with local real estate agents or check out online listings to find houses within your price range. Ensure your home meets your requirements, such as how many bedrooms it should have.
- Purchase Agreement: A purchase agreement is a legally binding contract between the buyer and seller. These contracts outline the terms of the sale to protect the buyer and seller. For example, a buyer may put a clause in the contract if the appraisal value is lower than expected. Many contracts include an Earnest Deposit Clause, which details how much the buyer will put down as a deposit and terms for refunding the deposit, such as if the buyer doesn’t make certain repairs.
- Inspection and VA Appraisal: An inspection is often recommended because it gives an in-depth look at the home’s condition. Buyers can negotiate a more favorable price if they have to spend significant money on repairs. A VA appraisal is required to obtain a VA loan. An independent VA appraiser will look at the property’s condition and ensure it meets the minimum property requirements to ensure veterans or their families don’t wind up with unsafe property.
- Complete Underwriting: Underwriting is the process lenders use to evaluate a borrower’s financial situation. You’ll need to submit proof of income, expenses, and assets. A lender will determine your debt-to-income ratio, look at your credit score, and evaluate your finances to determine your eligibility for a loan.
- Closing: Finally, you attend the closing and sign all necessary papers. The funds are sent to escrow, the loan closes, and you receive the keys to your new home!
Why Choose Pride Lending for Your VA Loan?
Besides choosing the home you want to buy, choosing the lender you want to work with is one of the most important decisions you’ll make in the home-buying process. Pride Lending is a trusted mortgage lender with years of experience in home loans, including VA loans.
We help people secure a Tennessee VA loan so they can start the next chapter in their lives, whether they’re purchasing their first or fifth home. We appreciate all our veterans and want to make the home-buying process as easy as possible for them.
Not only do we deeply understand the Tennessee VA loan application process, but we offer those who partner with us a streamlined application process. With our knowledge of the Tennessee VA loan requirements and expertise, we can help you get into your new home faster.
Take The Next Step In Your Tennessee Home Ownership Journey
Taking the steps to become a homeowner can be incredibly intimidating. From choosing the right type of home loan to choosing the right lender, it can feel hard to know where to start. Working with a lender who is well versed in Tennesee VA loan requirements is essential for those who want to utilize their VA home loan benefits.
Pride Lending is here to help you secure your VA loan in Tennessee so you can move into your new home quickly. Whether you’re upsizing or downsizing, contact Pride Lending to learn more about us and how we can help you navigate the VA home loan program as easily as possible.
