Homebuyers

Guide to VA Home Loans, Part 1

Those who serve or have previously served the country as a member of the U.S. Military are allowed to qualify for a special home loan specifically designed for them. Understanding all aspects of a Veteran Affairs loan helps veterans successfully utilize this option available to them.

If you offered your time and services to a branch of the military and are interested in purchasing a home, follow this guide to help as you begin navigating through the application process for a VA loan:

Understand the History

According to Military.com, VA loans were initially developed to help surviving spouses and U.S. veterans with long-term financing—particularly with the acquisition of a home. This opportunity was originally implemented within the Servicemen's Readjustment Act and passed by Congress in 1944.

Since the implementation of this loan option, 18 million different mortgages have been backed and provided to veterans and surviving spouses. In 1992 the act was amended to also include Reservists and National Guard personnel serving for at least six years.

While the U.S. Department of Veterans Affairs does not provide the loan, an applicant can receive a mortgage through a private lender and this government-affiliated group will insure it.

In addition, through the VA home loan program, an individual can freeze his or her interest rate at 6 percent if the service member must satisfy an active duty commitment. This protects military personnel from the financial woes they may accrue due to rising rates.

Know Who Qualifies

Bankrate noted several people associated with or who served in the U.S. military qualify for a VA home loan. If one of the following applies, you are probably eligible:

• Veterans 
• Active-duty members (after six months of service)
• Reservists 
• National Guard Members (after six years of service, but 181 days after service if called to active duty)  
• Surviving spouses of those who died or suffered a disabling injury while on active duty 
• Set foot on foreign soil 

"Most reservists are qualifying under active duty," said Michael Frueh, loan guaranty director for the Department of Veterans Affairs, according to Bankrate.

Qualifying for this type of loan requires you to obtain a certificate of eligibility. The U.S. Department of Veterans Affairs indicated you must prove your eligibility by providing evidence. You can do this through an online portal, through your preferred lender, or by mail.

If you are a surviving spouse, you can obtain your COE through the lender or mail and you must request a form specified for your circumstances.

If you are unable to print the required forms to apply for a COE, you can simply call and have the paperwork mailed to your current address.

Know the Benefits

A VA loan provides qualified applicants with many advantages, according to Zillow, an online real estate company. Veterans and surviving spouses who qualify do not have to provide a down payment for a new home unless the lender requires it or the purchase price winds up being higher than the actual value of the property. Some benefits include:

• Negotiable interest rates
• Lower closing costs 
• Prepaying without penalty 
• Buyer is informed of a reasonable value 

Bankrate also indicated private mortgage insurance (PMI) isn't required for a VA loan which can save you a substantial amount over time.

If you need assistance when paying off your home loan, you can acquire this with a VA mortgage.

"We have dedicated staff nationwide committed to helping veterans who are experiencing financial difficulty," said John Bell, assistant director of loan policy at the VA, according to Bankrate.

Identify Additional Requirements and Potential Fees

If you decide you want to apply for and use a VA loan to buy a new home, there are some fees and requirements that apply.

While a minimum credit score is not required by the VA, some lenders may request a score of at least 620. Sufficient income is another requirement that may be necessary when applying for this type of loan. However, the flexibility is an improvement from a Conventional loan.

"We look at the whole credit picture, what was the reason for the credit bankruptcy and where the borrower is now," Bell stated, according to Bankrate.

When applying for this loan, keep in mind the amount can vary across regions, but typically the maximum loan without a down payment will settle around $417,000 and may go as high as $1.094 million.

These loans can only be used toward a primary home. Using this mortgage toward refinancing, investments, or second homes is not allowed.

A one-time funding fee is also associated with a VA loan. Also, if a down payment is not provided, a fee of 2.15% of the loan is applied if you are currently in the armed forces. If you provide a 10% down payment, your fee is reduced to 1.25 percent of the total value.