VA Loans

What is a VA Loan?

We have many veterans ask us the question what is a VA loan? A VA loan is a mortgage loan that is backed by the U.S. Department of Veterans Affairs (VA) and offered to eligible service members, veterans, and their spouses. The VA does not actually lend money for VA loans; instead, it guarantees a portion of the loan, which enables private lenders to provide financing to qualified borrowers without the need for a down payment or private mortgage insurance (PMI).

The United States government established the VA Home Loan Guarantee Program back in 1944. The goal was to minimize economic challenges faced by service members during post-war readjustment to civilian life. The Government felt that Veterans had missed out on the chance to establish a credit rating that could be used to borrow money to buy a home. The basic fundamentals of the present-day VA loan program are fairly easy to understand. You apply for a mortgage through a private lender, or bank, and the Veteran’s Administration guarantees 25% of the loan on your behalf. That means the VA will pay the lender 25% of the loan balance if you happen to default on your mortgage. It’s because of this guarantee that lenders are able to relax traditional requirements and make VA home loans much easier to obtain.

VA loans are designed to help service members, veterans, and their families obtain affordable financing for the purchase of a home. They offer a number of benefits compared to conventional mortgages, including more favorable interest rates, no down payment requirement, and no PMI requirement. However, not everyone is eligible for a VA loan. To qualify, you must meet certain service requirements and have a certificate of eligibility (COE) from the VA.

 

VA Home Loan Benefits

Overall, VA loans can offer significant benefits to eligible service members, veterans, and their spouses, making it easier for them to buy a home and save money on their mortgage. Let’s take a closer look at some of the VA home loan benefits.

100% Financing

No down payment is required, which can make it easier for qualified borrowers to buy a home without having to save for a large down payment. Most people need a substantial amount of cash on hand to qualify for conventional funding. The average price of homes sold in the United States is around $234,000. To get the best rates and qualify for a conventional mortgage, a 20% down payment is ideal. How long would it take you to save $46,000? Not having to wait years to come up with a down payment is one of the biggest draws of a VA loan for most people. It’s especially helpful for first-time home buyers.

No Private Mortgage Insurance

VA loans do not require private mortgage insurance (PMI), which can save borrowers hundreds of dollars per month.. Conventional mortgages add PMI to any loan with less than a 20% down payment. PMI protects the lender if you happen to default on your mortgage. This is not an issue with a VA loan, because the VA guarantees the loan for you. Not having a PMI payment can save you hundreds of dollars every month, allowing you to redirect that money into savings, or enjoy some extra buying power.

Lower Interest Rates

Another benefit is VA loan rates. VA loans often have more favorable interest rates compared to conventional mortgages, which can help borrowers save money on their monthly mortgage payments. If you have a question about the VA loan rates give us a call now at (855) 956-4040.

Relaxed Requirements

VA loans are more lenient when it comes to credit score requirements, so it may be easier for some borrowers to qualify for a VA loan compared to a conventional mortgage. 25% of the VA loan is guaranteed by the Veteran’s Administration, there are relaxed VA loan requirements that are often easier to qualify for than conventional loans. Many veterans have qualified for a VA mortgage that would not have been approved under traditional guidelines.

VA Loans are Assumable

VA loans are assumable, which means that if you sell your home, the buyer can take over your VA loan and its associated benefits.

 

VA Loan Eligibility

As you can imagine man veterans have VA loan eligibility questions. If you are an Active Duty Service Member, Veteran or a former or current member of the National Guard, Reserves, you are most likely eligible for a VA home loan. Each military category has a set of minimum service requirements which change based on which years were served.

Service During War Time

If you served during World War II (September 16, 1940 – July 25, 1947), the Korean War (June 27, 1950 – January 31, 1955), or Vietnam (August 5, 1964 – May 7, 1975), and have served at least 90 days of active duty with an other than dishonorable discharge. Less than 90 days is allowable if you were discharged for a service-connected disability.

For the Gulf War (considered August 2, 1990 until a still to be determined date), service requirements are as follows:

1. 24 months of continuous active-duty – with other than dishonorable discharge

2. 90 days or completed full term that was ordered to active duty with other than dishonorable discharge

3. 90 days active duty, but discharged for hardship, convenience of the Government, early out, a RIF (reduction in force), or compensable service-connected disability

4. Less than 90 days active duty is allowable if you were discharged for a service-connected disability

Service During Peace Time

Anyone serving from July 26, 1947 – June 26, 1950 and February 1, 1955 – August 4, 1964, those enlisted from May 8, 1975 – September 7, 1980, and Officers from May 8, 1975 – October 16, 1981 need to have served at least 181 days of continuous active duty without a dishonorable discharge, or less than the 181 days if due to a service-connected disability.

If you were separated from service after September 7, 1980 (or October 16, 1981 for Officers):

1. 24 months of continuous active duty – with other than dishonorable discharge

2. At least 181 days or completed full term of active duty with other than dishonorable discharge

3. At least 181 days of active duty – and discharged for hardship, convenience of the Government, early out, a RIF (reduction in force), or compensable service-connected disability

4. Less than 181 days active duty is allowable if discharged for a service-connected disability

5. If you meet the service minimums, you are entitled to the VA loan benefit.

 

VA Entitlement

VA entitlement is a term used by the Department of Veterans Affairs (VA) to refer to the amount of money the VA will guarantee for a VA home loan. Each eligible borrower has a certain amount of VA entitlement, which is used to determine the maximum loan amount that the VA will guarantee. In general, the VA will guarantee up to 25% of the loan amount, up to the borrower’s VA entitlement amount. This means that if a borrower has $50,000 in VA entitlement, the VA will guarantee up to $12,500 of a VA loan. If the borrower has less than $50,000 in VA entitlement, the VA will guarantee the full amount of their entitlement.

If you are eligible for the VA loan program, then you earn what is known as your entitlement. Your Entitlement is the amount of money the VA is willing to guarantee on your behalf to a private mortgage lender. The VA offers a basic entitlement of $36,000 to each Veteran. A lender is usually willing to loan you up to four times that amount – or $144,000. However, in many places across the country, it’s difficult to find a suitable home for $144,000. The department of veterans affairs knows this, so they decided to link the amount it guarantees to the conforming loan limit for conventional financing as stated by the Federal Housing Agency (FHA). In most counties across the country, the department of veterans affairs will back 25% of your home loan, up to a maximum loan amount of $484,350 (and more in certain high-cost counties).

The VA loan entitlement is yours for the duration of your life. It never expires, and you can use all of it or just some of it. You can even borrow more than the loan limit of $484,350, but most lenders will require some sort of down payment since the department of veterans affairs only backs 25% of the loan. You can use your entitlement as many times as you want, as long as the previous loan is paid in full.

 

Certificate of Eligibility (COE)

A lender will not know that you are eligible for a VA loan without a Certificate of Eligibility. The COE proves to the lender that you meet the minimum service requirements necessary to qualify for a VA home loan. It will also state how much of your Entitlement you have available to use for your loan. You need certain documents in order to apply for your COE, and the documents change based on your military category. For example, a Veteran simply needs a copy of their DD Form 214, while active duty service members need a statement of service signed by their adjutant or commander.

The easiest way to apply for a COE is to ask your lender. Many lenders have access to an online database that can issue a COE in seconds. This method will only work if the department of veterans affairs has enough information about you stored in their database. If this fails, you can also apply by mail or use your e Benefits portal at www.ebenefits.va.gov.

 

VA Loan Occupancy Requirements

One of the requirements for a VA loan is that the borrower must occupy the property as their primary residence. This means that the borrower must live in the home as their primary residence, rather than using it as a second home or investment property. The borrower must also intend to occupy the property within a reasonable period of time after closing, typically 60 days. These requirements are in place to ensure that VA home loans are used to help veterans and service members buy homes that they will actually live in, rather than being used for other purposes.  Your VA home loan must be used for your primary residence. You are not allowed to use your benefit toward a vacation home, investment property or a second home.  If there is work that needs to be done on the property before you can move in, you can file for a delayed occupancy. You simply need to show that you plan to move into the house as soon as work is completed.

The VA understands that active military personnel live complicated lives, and because of this there are many exceptions that can be made to the occupancy rules. For example, if you are called to active duty, your spouse may meet the occupancy rule by living at the home full time. The same goes for adult children if both parents are called to active duty. If you are deployed away from your permanent station, you are still allowed to purchase a home where your permanent residence will be. This is because the VA considers deployment a temporary situation.

 

The Funding Fee

The VA Funding Fee is a fee charged by the Department of Veterans Affairs (VA) to help cover the cost of the VA home loan program. This fee is charged to most borrowers who take out a VA home loan, and the amount of the fee varies depending on the type of loan and the borrower’s military service history and other factors. The fee can be paid upfront at closing or it can be rolled into the loan. The purpose of the VA Funding Fee is to ensure that the VA home loan program remains self-sustaining, without the need for taxpayer funding.

The funding fee is calculated using a percentage of the total amount of the loan. It’s based on several factors, such as whether you make a voluntary down payment, if you are a first time user, and/or your military category. The chart below outlines how the percentages are figured:

In some cases, you may qualify for a VA funding fee exception. If you receive compensation for a service-connected disability, or if you are a surviving spouse of a Veteran who died in service or due to a disability, you would probably qualify for an exception. Your disability rating must be 10% or higher in order to qualify. If this applies to you, ask your lender about getting the right documentation to apply for the exception.

VA Closing Costs

VA Closing costs are fees and expenses associated with the purchase of a home using a VA home loan. These costs can include things like the VA funding fee, the lender’s origination fee, third-party fees for services like appraisals and inspections, and other miscellaneous costs. VA closing costs can be paid upfront at closing, or they can be rolled into the loan amount and paid over time.

The good news is that with a VA loan, you will pay substantially less in closing costs than with a conventional mortgage. Items that you are responsible for according to the VA include:

· Appraisal

· Origination Fee

· Credit Report

· Land Surveys

· Flood Certification

· Title Examination Insurance

· Attorney Fees

· Recording Fees

· Discount Points and any Prepaids

There are also non-allowable fees that are not charged to you as part of your closing costs. Items such as attorney fees incurred by the lender, real estate broker fees and additional appraisals will not be your responsibility. The VA funding fee is treated separate from your closing costs as this fee goes directly to the VA. You can choose to pay that up front, but most people choose to roll the funding fee into the loan balance.

VA Condo Eligibility

If you are interested in purchasing a condo or a townhouse instead of a detached house, there are a few things you should know. A condominium complex must go through a special VA approval process to be eligible for VA home loan financing. Since the VA guarantees the loan, it’s important that the development is suitable not only for living purposes, but also resale value.

The veteran’s administration looks for how many units are owner-occupied vs. rented out, and whether most of the residents are current on their Home Owners Association fees. Also, if the property is new, then at least 75% of the units must be sold.

Your best bet is to find a property that is already VA approved. Visit the VA.gov website where you can perform a search for properties that have already gone through the vetting process. The list is updated in real time, so it’s always current. Once you find a condo that is VA approved, the financing process is pretty straightforward.

Benefits of Owning a Home

For most people, a large part of the American Dream is owning their own home. Whether is building a home, purchasing a VA manufactured home or buying a traditional home the dreams are the same. It brings up visions of settling down, putting down roots and becoming part of a community. It doesn’t matter if you are in your 20’s and just starting out or in your 60’s looking to downsize and retire. Buying a home often feels like a new beginning. It’s also a wise financial move, opening up a world of opportunities not available to you while renting. If you are thinking about buying a house, here are some things to consider:

  Equity – your house is a solid investment. If you purchase a $200,000 home, every payment you make reduces the amount you owe to the bank. At the same time, chances are good that the value of your house will increase. When you decide to sell your home, you get that money back. If in 10 years that $200,000 home is worth $250,000, and you owe $165,000 on your mortgage, you get $85,000 cash in your pocket. If you’re renting and decide to move after 10 years, you have nothing to show for it.

  Taxes – you are allowed to deduct mortgage interest, property taxes and certain energy efficient upgrades from your taxes. The tax savings is a huge benefit to owning your own home instead of renting.

  Stable Monthly Payments – if you opt for a 30-year fixed rate mortgage, you never have to worry about your payments changing. It will stay pretty much the same throughout the term of the loan. This makes monthly budgeting much easier, because you don’t have to worry about sudden rent increases or.

  Your House, Your Rules – it’s your house and you can decorate it however you like. When you rent, that’s usually not an option. Own your own house though, and sky’s the limit! Paint, wallpaper, carpet, hardwood, landscaping, you name it. Let your creativity run wild and allow your dream to become reality.

Pride of ownership – Owning a home can give you a sense of pride and accomplishment.

These are just a few of the benefits of home ownership. Your house should be a welcoming, stable place for you relax and be at peace. A veteran home loan program can get you there.

How to Apply for a VA Home Loan

Are you wandering how to apply for a VA home loan? To apply for a VA home loan, you will need to gather some documentation and information about your finances and military service, and then submit your application.

Here is a general step-by-step guide to the VA loan application process:

 Determine your eligibility for a VA loan. To qualify for a VA loan, you must be a current or former member of the U.S. military or National Guard, or the surviving spouse of a veteran who died in service or from a service-related disability.

 Gather the necessary documentation. You will need to provide proof of your military service and your income, assets, and credit history. This may include your DD-214 form, pay stubs, tax returns, bank statements, and credit reports.

 Shop around for lenders. You can contact multiple lenders to compare rates and terms, and choose the one that offers the best deal for your situation.

 Submit your application and supporting documentation to your chosen lender. You will need to complete a loan application and provide the lender with the documentation they require.

 Wait for the lender to review your application and make a decision. The lender will evaluate your financial information and credit history, and determine whether you are eligible for a VA loan and how much they are willing to lend you.

 If your application is approved, the lender will provide you with a loan estimate, which outlines the terms of the loan and your estimated monthly payments. Review the loan estimate carefully to make sure you understand the terms and are comfortable with the monthly payment.

 If you decide to proceed with the loan, you will need to sign a promissory note and other loan documents. The lender will then work with you to finalize the loan and disburse the funds.

Keep in mind that this is just a general overview of the process, and the specific steps and requirements may vary depending on the lender you choose. National VA Loans has helped many veterans and active military personnel successfully navigate the mortgage maze and finally enjoy the house of their dreams.