Who is Eligible for a VA Loan?

Front side of typical american porch colonial house with white t

 

If you are an active or former member of the military, it may be worthwhile to consider a Veterans Administration (VA) loan for your next home purchase or refinance. Many veterans don’t realize they have this benefit available to them.

 

If you meet any of the following criteria you likely are eligible for a VA mortgage:

 

  • Honorably discharged after serving at least 90 consecutive days of active service during wartime or 181 consecutive days of active service during peacetime (there is a two-year requirement if the veteran enlisted and began service after Sept. 7, 1980 or was an officer and began service after Oct. 16, 1981).
  • Served six years in the National Guard or Reserves
  • Are the spouse of a service member who has died in the line of duty or as a result of a service-related disability.

 

It’s important to note that The VA doesn’t actually make these loans.  Their role in the transaction is guaranteeing a good part of the loan balance if you default on it.  Private lenders actually underwrite and make the loans, meaning your monthly payment will go to the lender rather than the VA.  The current maximum loan amount is set at $424,100 for most counties.  As with other types of mortgages, areas designated as High-Cost allow for higher amounts.

 

Did you know that VA Loan benefits are reusable? As long as the loan is paid off, you can continually use the entitlement. Even if you’ve lost a home to foreclosure or declared bankruptcy previously, you should still be able to get another VA loan.

 

 

 

Some of the reasons why you should consider a VA loan if you are eligible include:

In most cases, there is no down payment required. For cash-challenged young people, this factor can’t be underestimated. Especially when conventional and FHA loans typically require down payments of at least 3% of the sales price.

 

VA loans also do not require monthly mortgage insurance premiums. This is another significant advantage because FHA loans have up-front and annual mortgage insurance charges. And unless you are putting down 20% or more, borrowers must purchase private mortgage insurance on conventional loans. There is an administrative cost of sorts with the VA Funding Fee, which usually is 2.15% of the loan amount if this is your first VA loan (rates are higher for subsequent loans), but can be rolled into the loan instead of paid out of pocket. Reservists and members of the National Guard will pay a slightly higher rate in most circumstances.  The Funding Fee rate can be lowered by making a down payment of at least 5% and is waived altogether for borrowers with service-related disabilities.

 

Another great feature is the fact that VA mortgages are typically assumable, meaning someone can take over your favorable mortgage payment if you sell the home.  That could potentially be a huge advantage in a market where interest rates have risen since your purchased the home.

 

Lastly, underwriting guidelines for VA loans are typically less stringent than other types of mortgages.

 

It is important to know that VA loans are meant for primary residences only, such as single-family homes, condos, and some multi-unit properties. Unfortunately, you can’t get a VA loan for an investment property or that dream vacation home.

 

While it is easier for a veteran to receive a home loan, it’s still not a certainty. There are many aspects to the home purchase and mortgage underwriting process that must be reviewed.  However, if you have VA benefits available and can be approved, it would be smart to consider utilizing this valuable benefit for your home financing needs.