Ten things most Veterans don’t know about VA home loans


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More than 21 million Veterans and Servicemembers live in the U.S. today, but only about 6 percent of them bought a home using a VA home loan in the past five years. That percentage could be much higher.

Eligible Veterans often bypass the program as a viable option for a number of reasons.

First, they may not know all the advantages. Second, they may think getting a VA loan is an arduous process to be avoided. Last, some lenders don’t take the time to teach Veterans about the program, or don’t know much about it themselves. The VA home loan is a program non-military home buyers wish they had access to.

My advice: take a few minutes to learn these 10 facts about the program, and you’ll all but forget about any other home buying or refinance option.

1. No down payment, no mortgage insurance

These are perhaps the biggest advantages to a VA loan. You don’t need a down payment. None whatsoever. Most mortgage programs, such as FHA and conventional loans, require at least 3.5 percent to five percent down.That’s up to $12,500 on a $250,000 home purchase.

With a VA loan, you can buy immediately, rather than years of saving for a down payment. With a VA loan, you also avoid steep mortgage insurance fees. At 5 percent down, private mortgage insurance (PMI) costs $150 per month on a $250,000 home, according to PMI provider MGIC.

With a VA loan, this buyer could afford a home worth $30,000 more with the same monthly payment, simply be eliminating PMI. Using a VA loan saves you money upfront, and tremendously increases your buying power.

2. Use your benefit again and again

Your VA home loan benefit is not one-and-done. You can use it as many times as you want. Here’s how.

Assume you purchased a home with a VA loan. But now, you’ve outgrown the home and need something bigger. When you sell the home and pay off the VA loan completely, you can re-use your benefit to buy another home. Your entitlement is restored in full.

But that’s not the only way to re-use your benefit.

Eligible Veterans and Servicepersons can receive a one-time restoration when they pay off the VA loan, but keep the home. This scenario comes into play if you purchased the home long ago, and have paid off the loan. It also applies if you have refinanced the VA mortgage with a non-VA loan.

In these cases, you can keep the home, and enjoy the benefits of VA home buying one more time.

3. Your benefit never expires

Once you have earned eligibility for the VA home loan, it never goes away. Those who served 20, 30, even 50 years ago often wonder whether they can still buy a home today if they never used their benefit. If eligibility can be established, the answer is yes.

Eligibility is based on the length of time served, and the period in which you served. For instance, a U.S. Army Veteran with at least 90 days in service during the Vietnam era is likely eligible.

To check eligibility, first obtain your DD Form 214. With that document, a VA-approved lender can request your VA Certificate of Eligibility for you, or you can request it directly from VA’s eBenefits website. You may be eligible to buy a home using a VA home loan, even if you served long ago.

4. Surviving spouses may be eligible

More than 3,000 surviving spouses purchased a home with their fallen partner’s VA benefit in 2015. Un-remarried husbands and wives of Servicepersons who were killed in action can buy a home with zero downpayment and no mortgage insurance. Plus, the VA funding fee is waived.

There’s no way to repay the spouse of a fallen hero, but this benefit surely helps them move forward after tragedy.

5. VA Loan Rates Are Lower

According to loan software company Ellie Mae, VA loan rates are typically about 0.25% lower than those of conventional loans. The VA backs the mortgages, making them a lower risk for lenders. Those savings are passed on to Veterans.

Additionally, VA loans come with some of the lowest foreclosure rates of any loan type, further reducing risk for lenders. No surprise here, but Veterans and Servicepersons take homeownership seriously. These factors add up to lower rates and affordable payments for those who choose a VA loan.

6. VA loans are available from local lenders

The VA home loan is unlike most other VA benefits. This benefit is available from private companies, not the government itself. The Department of Veterans Affairs does not take applications, approve the loans, or issue funds. Private banks, credit unions, and mortgage companies do that.

The VA provides insurance to lenders. It’s officially called the VA guaranty. The VA assures the lender that it will be repaid if the Veteran can no longer make payments. In turn, lenders issue loans at superior terms. In short, a VA loan gives you the best of both worlds. You enjoy your benefit, but have the convenience and speed of working with your chosen lender.

7. Buy, refinance or tap into home equity

The VA home loan benefit is not just for buying homes. Sure, it provides unmatched home buying advantages, but you can also use it to refinance your existing mortgage, whether it’s a VA loan or not.

Homeowners with a VA loan can use the Interest Rate Reduction Refinancing Loan, or IRRRL, to easily drop their rate and payment without an appraisal, or even paystubs, W2s or bank statements. The VA streamline refinance, as it is commonly known, gives VA loan holders a faster, cheaper way to access lower refinance rates when rates fall.

Even homeowners without a VA loan can use a VA refinance. The VA cash-out loan is available to eligible Veterans who don’t have a VA loan currently. As its name suggests, a VA cash-out refinance can be used to turn your home’s equity into cash. You simply take out a bigger loan than what you currently owe. The difference is issued to you at closing.

The VA cash-out loan amount can be up to 100 percent of your home’s value in many cases. Use the proceeds for any purpose – home improvements, college tuition, or even a new car.Many homeowners today are dropping their rate and taking cash out simultaneously, accomplishing two goals at once.

But you don’t have to take out cash to use this VA loan option. You can also use it to pay off a non-VA loan. Eligible homeowners who pay mortgage insurance or are dealing with other undesirable loan characteristics should look into refinancing with a VA loan. It can eliminate PMI, get you into a stable fixed-rate loan, pay off a second mortgage, or simply reduce your rate to make homeownership more affordable.

8. Lenient guidelines for lower credit scores, bankruptcy, foreclosure

Unlike many loan programs, a lower credit score, bankruptcy or foreclosure does not disqualify you from a VA home loan.

Shop around at various lenders, because each will have its own stance on past credit issues. However, VA guidelines do not state a minimum credit score to qualify. This gives lenders leniency to approve loans with lower scores. In addition, VA considers your credit re-established when you have established two years of clean credit following a foreclosure or bankruptcy.

Many homeowners across the U.S., military and civilian, experience bankruptcies and foreclosures due to a loss of income, medical emergency or unforeseen event. Fortunately, these financial setbacks don’t permanently bar VA-eligible home buyers from ever owning again.

The exception, though, is a foreclosure involving a VA home loan. In this case, you may need to pay back the amount owed on the foreclosed VA loan to regain eligibility. But for most home buyers with past credit issues, a VA home loan could be their ticket to homeownership.

9. Funding fee waivers

VA typically charges a funding fee to defray the cost of the program and make home buying sustainable for future Veterans. The fee is between 0.50 percent and 3.3 percent of the loan amount, depending on service history and the loan type.

However, not everyone pays the VA funding fee. Disabled Veterans who are receiving compensation for a service-connected disability are exempt. Likewise, Veterans who are eligible for disability compensation, but are receiving retirement or active duty pay instead, are also exempt from the fee.

10. Buy a condo with a VA loan

You can buy many types of properties with a VA loan, including a single-family (free-standing) home, a home of up to four units, and even manufactured homes. But condominiums are commonly overlooked by VA home buyers.

Condominiums are ideal starter homes. Their price point is often lower than that of single-family homes. And, condos are often the only affordable option in many cities.

The VA maintains a list of approved condominium communities. Veterans can search by city, state, or even condominium name on VA’s condo search tool. It’s not a short list. For example, there are more than 2,400 approved condo communities in Washington State, about 1,000 in Texas, and a staggering 9,000 in California.

As a Veteran or Servicemember, consider the array of home types when shopping for a home.

11. There are more than 10 reasons to use a VA home loan

The preceding 10 facts are just a few, and there are actually many more reasons to use your VA loan benefit. You’ve certainly earned it.

The freedom afforded to this country by members of all branches of the military, past and present, is not easily repaid. But consider this program a small “thank you” for your service and dedication.


Image of Tim Lucas The Mortgage ReportsTim Lucas is a former mortgage professional of 12 years, and currently editor of The Mortgage Reports, an online resource for today’s home buyer and homeowner.

Author

VAntagePoint Contributor

— VAntage Point Contributors provide insight and perspective on a wide range of Veterans issues. If you’d like to contribute a story to VAntage Point, learn how you can submit a guest blog at http://www.blogs.va.gov/VAntage/how-to-submit-a-guest-post/

Comments

  1. THOMAS SHIFFLETT    

    My credit score is not that great, and I’ve been working under the table because of my disability. Does this affect my chances of getting approved thru a bank? Please answer. Thank You.

    1. Rick Helberg    

      I served in the US Army from Feb. ’58 to Dec. ’60. Am I eligible for a VA loan?

      1. Tim Lucas    

        Hi Rick. You probably are eligible, and a VA lender can help you get your Certificate of Eligibility. If your discharge was not dishonorable, and you served 90 consecutive days of active service during wartime or 181 days of active service during peacetime, you are probably eligible for a VA home loan.

    2. Tim Lucas    

      Hi Thomas,

      You have several issues to consider. First, your credit score. The VA does not set a minimum credit score, but many lenders do. If your FICO is 640 or higher, you’ll probably b okay with some VA lenders. Even if it’s lower, you might be able to get a loan — it depends on how old your credit problems are and how severe your blemishes are.

      The second issue is your income. Your disability income can be counted by underwriters, and if it’s tax-free, many lenders will “gross up” the income. That is, they’ll adjust it upward, typically by 25 percent. So if you get $1,000 a month in disability, they’ll underwrite as though you get $1,250.

      Regarding your “off the books” income, that won’t be counted by a VA lender. For a lender to count your income, you have to supply pay stubs and W-2s or tax returns. Income has to be verifiable, reliable and ongoing for a lender to approve your mortgage.

      One advantage of VA home loans, however, is that lenders consider your income in the most favorable light they can. They underwrite using debt-to-income ratios, like other lenders, but they also look at your residual income, which is more forgiving. If you qualify under either of those methods, you can be approved for a loan.

  2. Dominick Corona    

    Howw do I apply for a VA loan

    1. Christy Taylor    

      There are many lenders that specialize in VA loans. I just closed on my house and used a fantastic lender at USAA. I’m also a Remax Realtor that specializes in working with Veterans.

      Much cheaper to own than to rent and come up with the typical first, last and one month security.

    2. audy darrel waldrop    

      I am almost 67 yoa does this affect my chances of getting a 300 even 15 year loan, I have been thinking 15 years because it would increase my equity more quickly, also this would be a refinance we no cash out.

      1. Tim Lucas    

        Lenders can’t age-discriminate. You could be 90 and get a 30-year mortgage. I’ve done a loan like that. 🙂

  3. Tammye J. Butler    

    Currently I am in two separate repayment programs for those with defaulted student loans. I simply cannot afford the over $800 monthly payment requested, and thus am working to get this reduced. My understanding however, is that ANY defaulted government loan prevents the awarding of another loan for the purposes of purchasing a home. Can you please provide clarity or additional information regarding this.

  4. Richard Hernandez    

    I have been living on a military program called VASH which parteners with HUD. I am told that I can apply for a home loan.
    There are many questions that I have concerning the amount of payment that I will have to make toward the monthly mortgage. Such as “will my grant be taken away?” How much of the mortgage payment am I responsible for, considering that the grant is 2/3rds of my total payment of rent as it stands right now. Will this still be the case?

  5. Tim Lucas    

    Thomas: you need to have documentable income. So you need W2s, paystubs, and if requested, tax returns to back up your income. You can use disability payments to qualify, though.

    Dominick: You can apply at any VA-approved lender in person or online. It’s just like applying for any other mortgage.

    Tammye: VA and all government-sponsored mortgages require a CAIVRS check which is a database of anyone who has defaulted on a government debt. You could check with a lender to see if you’re on the list. If not, you might be eligible. The fact that you are on a repayment program mean they are not truly in default.

    Richard: Not sure about that one. Check with VASH reps. It may be a rent assistance program only, not mortgage. They would have the answer.

  6. Sam W. Barraco    

    I’m A 20 year vet who purchased a new mobile home, for the first time in 1996…My lender was “CHASE”. at 10%. In 2000 I refinanced for a 7.5% loan. Now, today refinancing seem to be a great deal. However, NO ONE will refinance my loan. When did MOBILE homes not become a HOME.??

    1. Tim Lucas    

      2008. After the housing downturn, lenders started limiting manufactured home lending. VA allows manufactured homes, but not many lenders do. I’m guessing, though, you have such a small loan balance that paying closing costs wouldn’t be worth it.

  7. MALCOLM HART    

    NEED MORE EXPLANATION OF LAST PARAGRAPH OF ITEM #7

  8. JOHN ALBERT MEAUX    

    MY HOME WAS MADE UNLIVEABLE BY HURRICANE IVAN I HAVE PAID OFF MY ORIGINAL VA LOAN I HAVE BEEN LIVING IN A VERY OLD MOBILE HOME AND AN OLD MOTOR HOME.
    I AM NOW 100% DISABLED BECAUSE OF EXPOSURE TO AGENT ORANGE IN VIETNAM. I AM A MEMBER OF THE DAV THE AMERICAN LEGION VFW. I AM 70 YEARS OLD. CAN I QUALIFY FOR A NEW VA LOAN TO BUY A NEW HOUSE OR NEW MOBILE HOME. I HAVE THE LOT TO PUT EITHER ON.
    WHAT WOULD BE MY FIRST STEPS TO DETERMINE MY ELIGEABILITY FOR A NEW VA LOAN?

    JOHN A MEAUX

    1. Tim Lucas    

      Go to any VA-approved lender (many banks, credit unions, and mortgage companies are approved to do VA loans) and ask them to check your eligibility. They will have access and may be able to verify eligibility in minutes. You may need your DD-214.

  9. Roger Jerry Lents    

    I was told that in TX, if you refinanced a single family home non VA loan, one could not obtain a VA mortgage on this property??? Title 56???

    1. Tim Lucas    

      I haven’t heard of that. Typically you should be able to use a VA loan if you have entitlement remaining, even for a refinance.

  10. Marcus Edwin Hill    

    How do I find someone willing to lend to a vet

    1. Tim Lucas    

      Call around to local banks and credit unions. If they are approved by VA to do VA loans, they can check your eligibility and qualification status.

  11. chris Deiotte    

    How can i get a land and build loan.

    1. Tim Lucas    

      Technically VA allows construction loans, but most lenders don’t do them. Hopefully credit will ease soon and more lenders will start offering these loans.

  12. John Broadfoot    

    I had a VA loan but filed bankruptcy in 1997. I now have 8k left of my VA loan. It is simply not fair that VA punishes you for a lifetime when you make one little mistake. It’s been almost 20 years and I am also a disabled vet!

  13. Cecil Brooks    

    As a Vet, I bought a town house (not condo) in 2008 via FHA, built in 2006-no problems. Some townhouses and condos units built in 2014 are now going thru a 2016 ligitation process by the HOA (sues the old builders of the 2014 townhouses/condos) Those units built in 2006 are fine and not having problems as those units in 2014 and present. I’m told that I can not refi my place even though its not part of the ligitation and not the buildings involved, it’s because that entire HOA is in ligitation. Yet we have some people renting out, sold and bought some of the 2006 buildings in our HOA community. Fact, one of 2014 units was sold and bought this year. Yet I’m told I can not refi.by a VA appraiser. True/False or what’s going on?

  14. reggie atwell    

    I live in a senior park and rent the space, am I able to refinance to a VA loan?

  15. Christopher I Johnson    

    I have a low credit score and my wife owns land in Louisiana. Can we take out a mortgage against the property to pay off some debts and fix up our home? The home was damaged from the latest flooding.

  16. Jeffrey David houck    

    I served in 1995 to 1997 US Army . Am I eligible for a VA home loan with a General with honorable conditions discharge??

  17. George William Brown Jr    

    I’m in a intrest only loan at 9.5% for 30 years with Wells Fargo this loan was done in 2007 for 61,000 and right now I still owe 59,000. I need help getting out of this loan

  18. LV HOLLOWAY    

    I have a question I got my back injuries in1982 while on two week summar camp I am a100 % disabled could I get a v a long to buy a house

  19. Venessa Kearson    

    I am now 100% disabled female single veteran that needs a home that can be made to assist my needs. I want to buy a condo that I can have made to meet my needs so I can live alone. I owned a VA loan for a home that was foreclosed in 1994. How can I afford to repay so I can get another loan? I have a limited income and the rent I pay leaves a minimal amount to use to repayment. Where do I start and who can help me? I need a home as my disability is gradually diminishing my mobility.

  20. Nicodemus Garza    

    I am a of the post war veteran of veitnam war and have not been able to purchase a home i am currently living in due to my credit. I have been able to rent a home for 20 plus years from 500.00 to 900.00 dollars a month with out being evicted. So why can i not own my home by now.

    1. Ryan Wolf    

      I’m a Realtor serving Berks, Chester, Lancaster, Schuylkill, and Montgomery. We also serve the OC Maryland area. Have you talked to a mortgage specialist about purchasing? It would seem to me as long as your credit score is at least in the 620 range that you would be able to qualify for a loan.
      The way this poster made it sound was like every Veteran is qualified. He didn’t give a specific credit score. He also did not point out that if you’ve foreclosed or had a short sale those things could affect the qualification for the VA Home loan program.
      Text, call, email. I’d be happy to answer any questions. Thank you for your service!

      Ryan

  21. terry witkowski    

    VA home loans suck. i’m a 3-tour Vietnam vet and the loans are very problematic. they’re not worth my trouble, so I went to my local bank. sure, 20% down, but I can talk to someone face-to-face, not calling or e-mailing. i’ll stick with my bank. happy sailing.
    terry witkowski
    USN ’64-’68.

  22. terry witkowski    

    I already said VA loans suck.

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