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If you’re a Texas veteran or active-duty service member who’s looking to purchase a home, there are several financing options out there that can make homeownership easier and more affordable. Most notably, veteran borrowers can take advantage of the federal VA loan program. Keep reading for everything you need to know about getting VA loans in Texas.
What is a VA loan?
Put simply, a VA mortgage is a home loan that’s guaranteed or backed by the Department of Veterans Affairs (VA). Essentially, the VA agrees to insure a portion of the loan, which lowers the lender’s financial risk and allows them to offer more affordable financing options than you would find with a traditional loan. You can use a VA loan to purchase a home, to do a cash-out refinance, or a “streamline refinance” to reduce your interest rate.
VA guaranteed loans have been around since 1944 when President Franklin D. Roosevelt signed the original Servicemen’s Readjustment Act (also known as the GI Bill of Rights) into law. The bill was designed to help veterans achieve the dream of homeownership by offering them a federally-backed loan with no down payment. Today, active-duty service members, veterans, and certain military spouses are entitled to these benefits, provided they meet certain eligibility requirements.
Advantages of a VA home loan in Texas
As we mentioned above, there are several advantages to getting a VA loan. Let’s go over these loan benefits:
- No down payment required: The VA allows you to finance up to 100% of the home’s purchase price, as long as it isn’t greater than the home’s appraised value.
- No private mortgage insurance (PMI): Lenders often require that borrowers who put down less than 20% must pay mortgage insurance. However, this isn’t a requirement for VA loans since the government is backing the loan.
- No minimum credit score: The VA loan does not have a minimum credit score requirement. However, you’ll want to check with your individual lender to see if you meet their own requirements.
- Limit on certain closing costs: With VA loans, you can’t be charged for certain closing costs. For example, you don’t have to pay a lender application fee, escrow fees, or prepayment penalties. The VA also has a cap on lender origination fees, which can be no more than 1% of the loan amount.
- No maximum loan limit: The VA doesn’t have a cap on how much you can borrow for your home purchase. However, there is a limit on how much the VA will guarantee without a down payment, which usually affects the maximum loan amount your lender will be willing to offer. We’ll go over this in the next section.
VA loan entitlement
Every eligible VA member has a specific amount of money they’re “entitled” to by the VA government agency. The exact amount of entitlement you’ll get depends on the county loan limits where you’re purchasing the home. Lenders usually give loans up to 4 times your available entitlement without a down payment, as long as your income and credit are in good shape and the house appraises at or above the purchase price.
VA loan eligibility requirements
Just like with a standard mortgage, you’ll need to show your lender that you have sufficient income and satisfactory credit to afford a home. In order to do so, you’ll usually have to provide financial documentation including your credit score, tax returns, pay stubs, etc.
In addition to these typical requirements, VA loan applicants must also submit a Certificate of Eligibility (COE). This document helps verify that you have met the necessary service requirements to be eligible for a VA loan. To help you determine if you may qualify for a VA loan, let’s go over the conditions you’ll need to meet in detail:
❏ Wartime service: Must have served at least 90 days on active duty and have been discharged for reasons other than dishonorable discharge. The service may be less than 90 days if you were discharged due to a service-related disability.
❏ Peacetime service: Must have served at least 181 consecutive days on active duty and have been discharged for reasons other than dishonorable discharge. The service may be less than 90 days if you were discharged due to a service-related disability.
❏ Two-year requirement period: If the period of service was between September 7, 1980 and August 1, 1990, the Veteran must have completed 24 months of continuous active duty service or the full period for which he was called to active-duty service and he must have been discharged for reasons other than dishonorable discharge.
❏ Select Reserves: Members of the Reserves or National Guard are eligible provided that they have served at least six years and were honorably discharged, placed on the retirement list, continue to serve, or were transferred to an element of the Ready Reserve.
❏ Spouses: Must either be a non-remarried spouse of a Veteran who died while in service or from a service-related disability, the spouse of a service member missing in action or who is a prisoner of war, or a spouse in receipt of Dependency and Indemnity Compensation (DIC) benefits.
In addition to these guidelines, there are a few restrictions on VA loan usage that Veterans and service members must agree to:
- The home must be your primary residence.
- It must be a single-family home, townhome, or approved condo unit, including new construction homes.
- The eligible individual or an immediate family member must occupy the home within 60 days of closing.
When can you sell a VA loan home in Texas?
If you’re an active service member, you may be wondering if buying a house will tie you down. After all, one-third of military service members experience a permanent change of station (PCS) move every year.
Luckily, there’s typically no requirement for how long you have to live in the VA loan home before selling. VA loans also don’t have any prepayment penalties (a fee if you end your mortgage early), so there’s no need to worry about that if you’re considering selling. However, if you end up getting a PCS order, you may have to deal with the task of selling your home in a short period of time.
At Orchard, we’ve created a real estate solution to bring certainty to buying and selling your home and save you time along the way. Just answer a few questions about your home and your goals, and we’ll design a plan that works for you. We’ll help you sell your home on your schedule and avoid the stressful parts of the process, like showings and repairs.
Our service also allows you to move out on your schedule, so you can line up your closing dates and avoid the potential delays and costs that can come with a PCS move.