Are you a veteran or military service member wondering about your VA loan eligibility? Chances are if you have honorably served or currently serving in one of the branches of the United States Armed Forces you are most likely eligible for the VA loan. That being said lets take a closer look at VA loan eligibility and the many VA loan benefits like the closing costs.
Who Qualifies for a VA Loan?As a United States Veteran or Active Service Member, you have gone above and beyond the call of duty for this country. You’ve earned the benefits offered to you by the Department of Veterans Affairs. National VA Loans was started because one of the founding members was talking to a friend of his who happened to be a veteran. His friend was renting a home, trying to save money for his down payment. After some discussion, it came to light that this gentleman had no idea he could buy a home with little or no money down using his VA earned benefit. This should never happen.
In 2010, the VA did a major study of veterans, active duty service members and surviving spouses. 33% of veterans who had not used their VA loan benefit did not even know they had the option. These people may have spent years saving up money after having already spent four, six, twelve years or more in service to our country. But by utilizing your VA loan benefits, you could close on your home in under 60 days with very little money upfront.
The basic nuts and bolts of a VA home loan are pretty easy to understand. Just like a conventional mortgage, a private lender, or bank, provides the financing. You work directly with the lender throughout the application process, just like you would any other loan. The lender will know the ins and outs of what they need to do for securing this type of financing for you. Where the VA comes in is the guarantee. The VA guarantees 25% of the loan. This is why a down payment is not required, and why you can finance 100% of the price of the home. Lenders know that if you as the borrower default on the loan, they have the backing from the VA. It gives them much more flexibility in determining your eligibility for the loan.
You also aren’t limited to buying a single-family home. You can buy a manufactured home or a condo in a VA-approved project. You can use it to upgrade your current home with energy-efficient features, such as solar power. The IRRRL (Interest Rate Reduction Refinance) program lets you refinance your existing VA loan. And with a VA renovation loan, you can buy a fixer-upper or a foreclosed property and get more bang for your buck. In some cases, you can even build a brand-new home! Your lender will go over all your options with you and help choose the best one for your needs.
VA Loan Eligibility Requirements
How do you know if you are eligible to get this benefit? 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.
For the Gulf War (considered August 2, 1990, until a still to be determined date), service requirements are as follows:
- 24 months of continuous active-duty – with other than dishonourable discharge
- 90 days or completed full term that was ordered to active duty with other than dishonourable discharge
- 90 days active duty, but discharged for hardship, convenience of the Government, early out, a RIF (reduction in force), or a compensable service-connected disability
- Less than 90 days active duty is allowable if you were discharged for a service-connected disability Service During Peace Time
If you were separated from service after September 7, 1980 (or October 16, 1981, for Officers):
- 24 months of continuous active duty – with other than dishonorable discharge
- At least 181 days or completed full term of active duty with other than dishonorable discharge
- 9At least 181 days of active duty – and discharged for hardship, convenience of the Government, early out, a RIF (reduction in force), or a compensable service-connected disability
- Less than 181 days active duty is allowable if discharged for a service-connected disability
VA Loan Entitlement
If you meet the service minimums, you are entitled to the VA loan benefit. Entitlement is actually the official term used by the VA to describe the value of the benefit that you are due to receive. Entitlement is an important concept. The VA does not cap how much you can borrow with a VA loan, but it does limit the amount it will guarantee. This, in turn, may limit how much you are allowed to borrow. Each Veteran is allowed a basic entitlement of $36,000. Lenders will usually allow you to borrow up to 4 times your available entitlement without a down payment (assuming you meet other requirements set by the lender). So with your basic entitlement of $36,000, you can expect an allowed mortgage amount of $144,000 with no down payment.
The average selling price of homes in the United States in 2019 is $234,000, but in many areas, the amount soars even higher. The VA recognized this and provided a second-tier entitlement or a bonus entitlement. The VA uses the limit set by the FHFA (Federal Housing Finance Agency) to establish the bonus entitlement amount. As a result, VA loan limits for 2019 increased to $484,350. If you live in a high-priced area, you are allowed a limit of $726,525. For more detailed limits and to check your particular area, click here.
What if the house you are looking to finance is more than the VA loan limit? You can borrow more if it suits you. Say you decide to buy a $900,000 house in a high-cost living area. The VA will still only back 25% of $726,525. Keep in mind that the amount you can borrow is still decided by the lender based on your overall creditworthiness.
You can use your entitlement over and over, it’s not a one-shot deal. The catch is that you can’t exceed the total amount of your entitlement. If your mortgage tops out at the VA loan limit of $484,350 for your area, you have used the entire amount. Therefore, if you want to use it again, you will need to completely pay off the loan before you can get another.
You also don’t have to use your entire entitlement on one loan. For example, say your mortgage is $200,000. The VA backs 25% of that, or $50,000. You happen to live in an area where the loan limit is $484,350, so the total amount of your entitlement is $121,087 (25% of $484,350). That leaves you with $71,087 left that you can use on a second VA loan.
VA Loan Certificate of Eligibility
Once you determine that you are eligible, the next step is to apply for your Certificate of Eligibility. The COE or Certificate of Eligibility is your golden ticket to getting a VA home loan. This certificate is needed by the lender to prove you meet the minimum service requirements for VA loan eligibility. You will need certain documents in order to apply for your COE, and those documents depend on your military category. You are not able to get a VA home loan without this certificate. The good news is it’s not to hard to find out if you are eligible. You can call (855) 956-4040 to speak with a licensed VA home loan officer or you can visit the ebenifits protol here. www.ebenefits.va.gov
Veterans and Current/Former National Guard/Reserve members activated for service need their DD Form 214, including what service category they were and the reason for their separation of service.
Active duty service members and current National Guard/Reserve members not activated for service
need a current statement of service signed by their adjutant, personnel office or commander of the unit or headquarters. It must list the following items:
- Your full name
- Social Security Number
- Date of Birth
- The duration of lost time, if any
- Name of the command providing the information above
- Entry date of active duty
A discharged member of the National Guard needs an NGB Form 22 (Report of Separation and Record of Service) for each period of service, and an NGB Form 23, Retirement Points Accounting, and proof of the character of service.
A discharged member of the Reserve never activated for service needs a copy of your most recent annual retirement points statement and proof of honourable service.
A Surviving Spouse who gets DIC (Dependency & Indemnity Compensation) benefits needs to provide VA Form 26-1817 (be sure to include both of your social security numbers) and the veteran’s DD Form 214.
A Surviving Spouse who does not get DIC (Dependency & Indemnity Compensation) benefits needs to provide VA Form 21P-534-ARE, the veteran’s DD Form 214, your marriage license, a Death Certificate of a DD Form 1300 (Report of Casualty). Those forms can be sent to the appropriate Compensation and Pension office. You can find that here.
Once you get the correct documentation, 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 eBenefits portal at www.ebenefits.va.gov.
Applying for a VA loan has a lot of moving parts, but a lender who knows the process is a great resource. What other VA Home loan requirements should be on your radar? With the loan being guaranteed by the VA, lenders can relax additional guidelines typically used when applying for a mortgage, but they still take them into consideration. For instance, while the VA doesn’t require a minimum credit score to qualify for a loan, banks still use it as a measure of your overall credit risk. Your credit score for a VA loan should be a minimum credit score of 620, but some lenders may go as low as 580. It’s a good idea to check your credit score to find out where you stand before you start the loan process. There are several ways you can obtain your reports for free. If you find your score is below 600, it’s best to take some time to improve your credit before applying for a loan.
You will need to prove you have a stable income that allows for proper care of the home. This is your debt-to-income ratio or DTI. The VA advises a DTI no greater than 41%. What expenses count against determining your DTI? Your mortgage will be the largest expense, followed by instalment loans for cars, education and even recreational vehicles. Credit cards, alimony and child support payments are also included. The VA wants to get a well-rounded picture of your financial health, so lenders may also look at childcare costs and utility bills.
VA loans have a low foreclosure rate. Only 1.98% of VA home loans wind up in foreclosure. This is partial because, in addition to DTI, the VA looks at residual income. They want to make sure you have enough income left after paying your monthly bills to handle regular monthly expenses. The residual income is related to your debt-to-income ratio, but not the same. To find your residual income, subtract the expenses used in figuring your DTI from your monthly income.
The VA bases the amount of residual income needed by the size of your family and where you live. The country is broken down into four segments: Northeast, Midwest, South and West. As an example, a family of 4 in Massachusetts has a residual income threshold of
$1,025.00. That means that after your regular expenses are paid, you must have at least this amount left over to cover living expenses for the month.
As you can see, it’s important to choose a lender that knows the loan process inside and out. Our specialists at National VA loans are here for you. Call us at 855-956-4040 and we’ll look at all your opportunities. And as always, we thank you for your service.