Did you know that if you are a veteran of the U.S. Military, or have been on active duty for a minimum of 90 days, you may be eligible for a VA home loan? In recognition of the service given to your country, the VA has created a fantastic program chock full of special benefits for eligible service members and veterans seeking to buy a home. The VA home loan program is an outstanding benefit designed to help veterans live the American dream.
The Go To VA Home Loan GuideWe here at National VA Loans put together this guide to outline the benefits of the VA home loan program. Read through the information on this page, and then give us a call. Buying a home is one of life’s biggest milestones. Most of the time, it’s also one of the largest financial investments you’ll ever make. Read on to find out how the benefits of the VA loan program can turn your dreams of buying the perfect house into reality.
- Understanding VA Home Loans
- Home ownership Benefits
- VA Home Loan Benefits
- VA Loan Entitlement
- VA Loan Eligibility
- Certificate of Eligibility
- Occupancy Requirements
- The Funding Fee
- VA Closing Costs
- Condo Eligibility
- The Home buying Process
Understanding VA Loans
Did you know that there are millions of veterans eligible to explore their VA home loan benefits? Sadly only a very small percentage actually take advantage of this outstanding benefit.
The VA established the 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
There are also savings in store for those who opt for a VA backed loan over conventional financing. For one thing, you are not required to put any money down – you have the option to finance up to 100% of the cost of your home. This can spare you years of having to save up enough money to qualify for traditional financing. Interest rates on VA home loans are often lower than conventional financing, sometimes by a quarter of a percent or more. And even if you do finance 100% of your home, there is no Private Mortgage Insurance to worry about. All of these benefits combined can save you thousands of dollars over the lifetime of your loan, and make monthly payments easier to fit into your budget.
Benefits of Owning a Home
For most people, a large part of the American Dream is owning their own home. 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.
VA Home Loan Benefits
Let’s take a closer look at the benefits you get when you choose a VA home loan.
100% FinancingA down payment is not required to qualify for a VA home loan. 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 InsuranceWith a VA loan, there is no requirement for Private Mortgage Insurance (PMI). 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 RatesAnother benefit is that interest rates on VA loans are often lower than conventional rates. During the summer of 2019, a fixed-rate VA loan was listed at 4.20%, compared to 4.41% for a traditional fixed-rate loan. It may not sound like much, but that difference saves you about $25 a month on a $200,000 loan. Over 30 years, that’s a savings of $9,000!
Relaxed RequirementsBecause the lenders know that 25% of your loan is guaranteed by the Veteran’s Administration, VA loans are often easier to qualify for than conventional loans. Many veterans have qualified for a VA loan that would not have been approved under traditional guidelines.
VA Loan Eligibility
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
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 VA 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 VA 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 VA 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 VA 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.
The VA does have one very important guideline. 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. Once you close on your loan, you must move into your house within 60 days of the loan closing. 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 adds what is called a funding fee to almost every VA loan that is approved and processed. You can think of it as a sort of convenience fee to make up for the fact that there is no down payment or Private Mortgage Insurance (PMI) associated with the VA loan programs. The Funding Fee goes directly to the VA to eliminate the cost of the program to taxpayers. It is a self-sustaining platform supported by service members for other service members/veterans. Having the funding fee in place protects the borrowing rights of future service members and veterans.
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:
Type of Veteran Down Payment Percentage for First Time Use Percentage for Subsequent Use
Regular Military None 2.15% 3.30% 5% or more 1.50% 1.50% 10% or more 1.25% 1.25%
Guard None 2.40% 3.30% 5% or more 1.75% 1.75% 10% or more 1.50% 1.50%
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
Closing costs are an unfortunate reality for any loan, and a VA home loan is no exception. A real estate transaction is complicated, and there is a team of people that work hard to make sure your loan comes off without a hitch. And of course, that comes with a cost. Your lender combines all those administration costs into what are known as closing costs.
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:
· 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.
The Home Buying Process
Buying a home, especially if it’s your first time, can seem stressful and overwhelming. But with the right lender, it doesn’t have to be! A good lender will be able to take the guesswork out of the buying process. Also, the steps necessary to buy a house are mostly the same whether you are using traditional or VA financing. You can break it down into 5 basic steps.
Before you even start to look for a house, it is to your advantage to choose a VA approved lender and get your pre-approval. The Pre-Qualificationl process is an in-depth look at your credit report, income, Certificate of Eligibility and your overall financial stability. It will give you a good idea of how much the lender is willing to let you borrow, so you know where to start your home search. It also shows home sellers and real estate agents that you are serious about purchasing and they will be more open to discussing offers. Once you are pre-approved for your loan, you’ll receive a letter that you can show to potential sellers so they know you are truly interested.
Start Your Search
You will want to find a real estate agent that is well versed in the VA loan process. Because VA loans have specific guidelines regarding minimum property requirements and occupancy rules, a good agent can help you choose homes that meet these standards. They will help you negotiate with the seller on everything from the price of the house to possibly covering some of your closing costs.
Submit and Offer
Once you find a house that you want to buy, it’s time to put in a bid with the seller. Your real estate agent and lender can help you figure out the best price to offer based on current market conditions
and local comparable properties. You may decide to ask the seller for some concessions to cover escrow expenses, closing costs and even the funding fee. The VA allows up to 4% of the loan balance in concessions from the seller. This is also the time to put in a contingency based on an objective home inspection. While the VA does not require this, it’s to your advantage to have an objective third party give the home a once over. They will check for potential repairs that may need to be made, look for pest damage and other things you should know before signing on the dotted line. The end goal is to have a solid Purchase and Sale Agreement that both parties are happy with.
The Underwriting Process
Once you have a P&S agreement, this is where your lender takes over. Your team will work their magic and start the documentation necessary to examine your overall financial picture. During this part of the process, your lender will often ask you for additional documents such as W2’s, tax returns and bank statements. The quicker you can get them the information they need the quicker you can get to the closing!
As the date of your closing draws near, you will get a Closing Disclosure that outlines the final closing costs and other information so you know what you’ll be responsible for at the closing. This is where your lender will verify your employment and other important information again just before the closing. It is very important not to make any big financial changes between signing the purchase and sale agreement and closing on your VA loan. Do not take on any new loans, credit card debt or new employment if you can help it. If you have a change in income, be sure to tell your lender as soon as possible. You’ll take a final walk through of the property a few days before closing. On the actual closing day, you sign all your papers and receive the keys to your new home!
Buying a house can be both exciting and stressful. It takes some work, and it can be a long process. National VA Loans has helped many veterans and active military personnel successfully navigate the system and finally enjoy the house of their dreams. When you are ready to get started, call us at 855-956-4040. We will assign you a dedicated VA Loan Specialist who will talk you through all the steps discussed here. We can’t wait to show you how easy it can be to take advantage of all the benefits a VA loan can offer.