Veterans Affairs mortgages, better known as VA loans, allow veterans and their families to get financing to buy a home. Many times, VA loans do not require a down payment and are available to military veterans and active military members. These home loans are made through private lenders and are guaranteed by the Department of Veterans Affairs, so they do not require mortgage insurance. There’s no minimum credit score requirement. All of these aspects of a VA loan make them very attractive to home buyers.
The VA loan remains one of the few mortgage options for borrowers who may not have the money for a down payment. VA loans can be easier to qualify for than conventional mortgages, so they afford our veterans and retired military to seek a more permanent home rather than on post/base housing.
The U.S. Department of Veterans Affairs is not a direct lender. The loan is made through a private lender and partially guaranteed by the VA, as long as guidelines are met. If you may be eligible for a VA loan or are interested in applying for one, here are some critical things to know before you start the process.
Eligibility requirements
Most members of the regular military, veterans, reservists and National Guard are eligible to apply for a VA loan. Spouses of military members who died while on active duty or as a result of a service-connected disability can also apply.
After roughly six months of service, Active-duty military personnel generally qualify. Reservists and members of the National Guard must wait six years to apply, but if they are called to active duty before that, they gain eligibility after 181 days of service.
“Most reservists are qualifying under active duty,” says Michael Frueh, chief of staff of the Veterans Benefits Administration of the VA. Reservists, members of the National Guard and active-duty members generally are eligible after 90 days of service during a time of war.
“If you were on any type of foreign soil, more than likely you are eligible,” says Grant Moon, a veteran, and president of VALC Enterprises Inc., a loan referral company. Potential VA loan borrowers must obtain a Certificate of Eligibility or COE.
“But you don’t need the Certificate of Eligibility in hand to start the mortgage process,” says Chris Birk, director of education at Veterans United Home Loans. “Lenders, in many cases, can get this document for borrowers during the pre-approval phase.”
Advantages of a VA loan
One of the tremendous benefits is loans guaranteed by the VA can be obtained without any down payment. Additionally, a VA loan doesn’t require mortgage insurance, as do Federal Housing Administration (FHA) loans and conventional loans with less than 20 percent down. The benefit translates into significant monthly savings for VA borrowers. For instance, a borrower who makes a 3.5 percent down payment on a $200,000 FHA-insured mortgage pays $100 a month for mortgage insurance alone. With a VA loan, it shortens the time families would need to save prior to applying for a loan.
Underwriting requirements
The VA does not require a certain credit score for a VA loan, but lenders generally have their own internal requirements. Most lenders want an applicant with a credit score of 620 or higher.
Borrowers must show sufficient income to repay the loan and shouldn’t have a heavy debt load, but the guidelines are usually more flexible than they are for conventional loans.
VA guidelines allow veterans to use their home-loan benefits a year or two after bankruptcy or foreclosure. VA loans are available only to finance a primary home. A VA loan cannot be used to purchase or refinance vacation and investment homes.
The VA says there is no cap on the amount you can borrow. “However, there are limits on the amount of liability VA can assume, which usually affects the amount of money an institution will lend you,” the agency says. “The loan limits are the amount a qualified veteran with full entitlement may be able to borrow without making a down payment. These loan limits vary by county since the value of a house depends in part on its location.”
The limit on VA loans varies by county, but the maximum guaranty amount for 2018 is $453,100 and up to $679,650 in high-cost areas in the continental United States and even higher in parts of Hawaii.
Help for struggling VA borrowers
Another advantage of a VA loan is the assistance offered to struggling borrowers. If the borrower of a VA loan can’t make payments on the mortgage, the VA can negotiate with the lender on behalf of the borrower. The VA has dedicated staff nationwide committed to helping veterans who are experiencing financial difficulty, also the VA’s financial counselors can help borrowers negotiate repayment plans, loan modifications and other alternatives to foreclosure.
Regardless of whether they have VA loans, veterans who are struggling to make their mortgage payments can call (877) 827-3702 for assistance.
