Who's Eligible for a VA Home Loan
Active duty, Reservists, and Veterans are eligible for certain benefits, including home loan guarantees (VA Loan), if you meet the time-in-service and other criteria. Active duty means full-time service as a member of the Army, Navy, Air Force, Marine Corps, Coast Guard, or as a commissioned officer of the Public Health Service, the Environmental Services Administration or the National Oceanic and Atmospheric Administration. A Reservist is an individual who works in their civilian careers or attend college full time while serving near home. The Reserve Components of the Armed Forces are: The Army National Guard of the United States, The Army Reserve, The Navy Reserve, The Marine Corps Reserve, The Air National Guard of the United States, The Air Force Reserve, and The Coast Guard Reserve. A Veteran is a former member of the Armed Forces of the United States (Army, Navy, Air Force, Marine Corps, and Coast Guard) who served on active duty and was discharged under conditions, which were other than dishonorable.
What is a VA Loan
A VA-guaranteed loan is a loan made by private lenders (such as banks, savings and loans, or mortgage companies) to eligible Veterans, Reservists, or Active duty members. If you want to purchase a home, condominium or manufactured home, the VA can guarantee is up to $649,950 of the total loan amount -- much higher than you can get with most conventional home loans. If you are considering refinancing an existing loan, VA offers you two options. You can either refinance to reduce your current interest rate or you can take equity out (cash-out).
Additionally, there is no need to worry about a down payment (the portion of the home purchase price which the buyer pays in cash and does not finance) with a mortgage on a VA loan. However, certain funding fees (the percentage of total home loan paid to the VA at time of loan closing) and closing costs (expenses over and above the price of the property) incurred by buyers and sellers in transferring ownership of a property, aka settlement costs) apply, and you must pay a portion of these fees upfront.
With a VA guarantee, you get a mortgage with a competitive interest rate. The lender you borrow money from is protected against loss up to the amount of the guarantee if you fail to repay the loan, and you have the flexibility to purchase a great home. Visit the Veterans Administration website for the current table of VA Funding Fees and for information on veterans who are exempt (pay zero) from funding fees.
Specifically, a VA home loan can help veterans:
- Buy a home or residential condominium
- Build a home
- Repair, alter or improve a home
- Refinance an existing home loan
- Buy a manufactured home with or without a lot
- Buy and improve a manufactured home lot
- Install a solar heating or cooling system or other weatherization improvements
- Purchase and improve a home simultaneously with energy efficient improvements
- Refinance an existing VA loan to reduce the interest rate
- Refinance a manufactured home loan to acquire a lot
Advantages of a VA Loan
The VA Loan program is the most powerful home loan program on the market for many veterans, reservists, active duty members and military families. These flexible, government-backed loans come with significant benefits that open the doors of homeownership to veterans and other military members who might otherwise struggle to obtain financing.
- Equal Opportunity for ALL qualified Veterans to obtain a VA Loan
- No Down Payment (unless required by the Lender or the purchase price is more than the reasonable value of the property)
- No Mortgage Insurance
- One Time VA Funding fee that can be included in the loan
- Veterans receiving VA Disability Compensation are EXEMPT from the VA Funding Fee
- VA limits certain closing costs a Veteran can pay
- Can be assumed by qualified persons
- Minimum property requirements to ensure the Property is safe, sanitary, and sound
- Dedicated VA Staff to assist Veterans who become delinquent on their loans
- Less stringent qualifications
- Lower monthly payments
To be eligible for a VA Loan, Veterans, Active duty service members, National Guard members and Reservists must meet the basic service requirements set forth by the Department of Veterans Affairs. A spouse of military members who died while on active duty or because of a service-connected disability may also be eligible.
In general, Veterans who were honorable and general discharged qualify for most VA benefits. A regional VA office can clarify the eligibility of dishonorable, bad conduct discharges, parolees, and individuals with multiple discharges. Meeting the eligibility requirements is just the first step. There are still credit, income and other financial guidelines to clear. Current service members can also run into challenges regarding occupancy and the VA’s focus on primary residences.
Active military members will still need to meet VA and lender guidelines for credit score, debt-to-income ratio, residual income and more. If you’re not set to Expiration of Term of Service (ETS) within 12 months of your loan closing, there isn’t usually much room for concern about your employment. Lenders will obtain a copy of your Leave and Earnings Statement (LES) to get a better handle on your income. You may also be able to count some military allowances and special pay, such as flight pay, hazard pay and combat pay. On top of that, eligible service members can also count their Basic Allowance for Housing toward qualifying for a VA mortgage.
As a member of the Armed Forces, you may be eligible for a VA Home Loan if you meet one or more of the following conditions:
- You have served 90 consecutive days of active service during wartime, OR
- You have served 181 days of active service during peacetime, OR
- You have more than 6 years of service in the National Guard or Reserves, OR
- You are the spouse of a service member who has died in the line of duty or because of a service-related disability.
How to Apply for a VA Loan
The VA loan process typically takes up to 30 days once you’re under contract on a home, although every buyer’s situation is different. Applying for a VA loan doesn’t obligate you in any way to a lender or to moving forward with the home buying process.
Here’s a look at the four basic steps to applying for a VA home loan:
- Familiarize yourself with the broad VA Loan eligibility requirements above
- Contact a VA-approved lender and start your VA Loan application
- Obtain your Certificate of Eligibility through your lender or on your own
- Finalize your loan application and provide all necessary paperwork to your lender, including W-2s, tax returns and recent bank statements
How to Apply for a VA Loan Certificate of Eligibility (COE)
While you don't need your VA Certificate of Eligibility in hand to start the loan process, this certificate is a very important part of your loan application. Your COE verifies that your length and character of service make you eligible to use the VA home loan benefit.
You can apply for a VA Loan Certificate of Eligibility three different ways:
- Apply through a VA approved lender
- Apply online through the VA’s eBenefits portal
- Apply by mail with VA Form 26-1880
You can ask your VA-approved lender to obtain your COE on your behalf. The process takes minutes to complete with proof of your military service and ensures your home financing moves forward without delays. If you prefer to do the work yourself, VA Loan applicants can contact the Veterans Administration directly and fill out a Certificate of Eligibility (VA Form 26-1880).
If you are applying for a VA benefit for the first time you must submit a copy of your service discharge form (DD-214, DD-215, or for WWII veterans, a WD form), which documents your service dates and type of discharge, or give your full name, military service number, branch and dates of service.
The VA loan program is focused on helping veterans and service members purchase homes they will live in year-round as their primary residence. Vacation homes, investment properties or other income-producing ventures do not qualify. As part of that focus, the VA typically wants you living in the home full time within 60 days of closing.
Such a requirement can be challenging for some service members, especially those on deployment. There are exceptions to the occupancy requirement, the most common being that a spouse can fulfill it on your behalf. As a general example, an active duty borrower stationed in California could seek a VA loan to purchase a home in California, provided in part that his or her spouse can fulfill the occupancy requirement. In those cases, lenders would likely take the service member’s own living and travel expenses into account when evaluating what they can afford.
California is a great place to purchase a home using a VA home
loan because California provides property tax exemptions to 100% disabled veterans
meeting certain criteria up to $135,000 from the total purchase price of the home. A $5,000 exemption is available to veterans with a
service-related disability of 10 percent or more.
If you’re planning to buy a home in California using a VA home loan, a termite inspection is required. Additional guidelines include the fact that Staff Appraisal Reviewers can change the appraiser’s estimate of value (but rarely will), and refinancing of new construction condominiums may not be eligible. Buying a new construction condo is permitted, but the condo has to be approved by the VA and the borrower can’t receive a gift, grant, down payment assistance or a loan from a family member to cover closing costs. Attached new construction Planned Unit Development (PUDs) are also required to meet a 50 percent presale requirement.