Ever since the Servicemen’s Readjustment Act passed in 1944 the federal government has taken the position that if you serve your country honorably you have the right to certain privileges, home ownership being one of them. To that end the government has instituted programs that make it easier for service men and women to purchase homes. The process can seem overwhelming but is made easier when you understand the basics and choose a lender knowledgeable in the particulars.
What are VA loans?
These are loans made by private lenders partially backed by the Department of Veterans Affairs. The interest rates are lower than conventional mortgages. These loans have no down payment options and lower credit and income requirements. VA loans must be used to purchase a primary residence. They are not an option if you are purchasing a vacation home or investment property. The amount you can borrow is not limited, but the VA will only guarantee up to a certain amount.
Who can get VA loans?
Most members of the military whether on active duty in war or peacetime, veterans, and spouses of service members who died during active duty or died as a result of a service related disability can apply. Specifics of qualification include:
90 consecutive days active service in wartime
181 days active service in peacetime
6 or more years of active duty in the National Guard or Reserve
Spouse of service member who died in active duty or died as a result of a disability related to service
You must apply for a Certificate of Eligibility before you start shopping for a lender.
How do you get a Certificate of Eligibility?
You can apply online at Va.gov and log into your account. You can download the form and mail it in along with the required documentation proving your eligibility. You can also contact a lender for assistance.
The documents you need depend on your area of service.
Active duty military and active National Guard and Reserve
Current statement of service signed by the unit commander, personnel officer, or adjutant. The statement must include the service member’s name, social security number, birth date, date of entry into active service, and name of command providing the information.
Active National Guard and Reserve members
NGB Form 22 separation report and service record for each period of service
NGB Form 23 Proof of character and retirement points accounting
Veterans and former or current members of National Guard or Reserve
DD Form 214 Copy of type of service and reason for leaving required
Discharged Selected Reserve members with no federal active service
Evidence of honorable service and current retirement points statement
Surviving spouse receiving dependency and indemnity compensation
VA Form 26-1817 including veterans and spouses social security numbers
Surviving spouse not receiving dependency and indemnity compensation
VA Form 21-534
Copy of marriage license
Copy of death certificate or DD Form 1300
A Certificate of Eligibility does not mean you are qualified for a loan. It means you have the right to apply for a VA loan. You must still meet the lender’s requirements with regard to credit score, debt to income ratio, and income verification.
What are the required credit scores and income to qualify for a VA loan?
There is no minimum credit score required by the VA, but lenders making the loans do have minimum requirements. Most of the time lenders want to see scores of 620 or higher.
Applicants must have enough verifiable income to prove they can make their mortgage payments and still have sufficient funds left over to cover their other monthly obligations and living expenses. The VA allows a higher debt to income ratio than what you will find with most conventional mortgages. Veterans with bankruptcy or foreclosure histories have to wait a year or two before applying for a VA loan.
Is mortgage insurance required for VA loans?
No. This is a big advantage for those who qualify for VA loans. There is no private mortgage insurance or mortgage insurance premium required. Without these fees attached to your mortgage you may be able to buy more house that you thought possible.
There is a one time funding fee that helps offset the cost to taxpayers. The rate varies according to the type of service and the amount of down payment paid. With no money down a first time borrower will pay 2.15% of the loan amount. If you make a 10% down payment the fee decreases to 1.25%. National Guard and Reservists normally pay ¼% more than active duty service members.
How much money can you borrow?
As of 2019 the maximum amount the VA will guarantee is $484,350 in most areas of the country. In parts of the country where the cost of living is highest the VA increases the cap to $726,525.
What are entitlements, and what makes them important?
An entitlement is what the VA promises to repay the lender if you default on your mortgage. There are two kinds of entitlements, basic and bonus.
The basic entitlement is $36,000 or 25% or the mortgage amount, whichever is less. Most lenders will loan borrowers four times that amount which equals $144,000. That amount will cover the cost of a nice home in many areas of the country but not all.
In order to make sure veterans have the chance to purchase homes in areas of the country where real estate prices are high the VA created a second tier, or bonus, entitlement. It linked its guarantee amounts to the conforming loan limits used by conventional financing. Without getting into the math, the bonus entitlement helps service men and women purchase property no matter where they live. Check your area here.
You should remember there is no maximum on a VA loan. You can borrow as much money as a lender will loan you. There is a limit on how much the VA will guarantee.
Are service members on active duty eligible for financing even though they can’t occupy the residence?
Yes. Normally borrowers are required to move into their homes within 60 days of closing. These occupancy requirements are evaluated on a case by case basis. The spouse of an active duty service member meets the occupancy requirement. In some cases a minor child can fulfill the requirements.
Does the VA help veterans who are struggling financially?
Yes. This is one of the big advantages of having a VA loan. If you get behind on your payments or suffer financial reverses, the VA may negotiate with the lender on your behalf. They can negotiate a loan modification, a repayment plan, and other alternatives to prevent foreclosure. Even if you don’t have a VA loan but are a veteran struggling with mortgage payments, there is help available. Call (877) 827-3702 for more information.
Other Options using a VA loan
VA loans are good for more than just buying a primary residence. You can also use it to :
Refinance a loan at a reduced interest rate (IRRL)
The bottom line is if you are in the military active or retired, or the surviving spouse of a service member, home ownership is within your reach. The VA offers a variety of loan options to ensure that as much as possible the men, women, and families who serve are rewarded for the sacrifices they have made and continue to make.