Going into the military is a serious decision. Servicemembers face many risks to their physical safety and psychological well-being. They make many compromises in their personal lives, from frequent trips across the U.S. to overseas deployments that challenge even the toughest families.
To compensate for their personal sacrifices, soldiers receive many direct and indirect financial benefits.If you’re weighing whether to buy a home as a current or former member of the military, one benefit you need to know more about is the VA loan. Learn how you can save thousands of dollars as a homeowner with the VA mortgage loan program.
What is a VA home loan?
Like traditional mortgages, most VA loans are made by debtors. But they are backed by the full faith and credit of the U.S. government, especially the U.S. Department of Veterans Affairs, up to a limit set by federal regulations.
That limit is adjusted annually. In 2022, it will cost $647200 in most areas of the country. Some high-cost districts have higher loan limits up to $970,800 in 2022.
Federal guarantees allow lenders to reduce risk and provide better terms. This often lowers the interest rate and means you don’t have to have expensive personal mortgage insurance (PMI) on certain loans.
In addition, lenders can provide home loans with no down payment, so servicemembers with limited personal savings can take advantage of home ownership. Existing loans require a down payment. A minimum of 20 percent of the property value is required to avoid PMI. Other government-funded loans, including FHA loans, also require a down payment.
Who is eligible for VA home loans?
Many employees can apply for VA loans, such as military and kitchen guards, veterans, reservists and spouses of military personnel. Length of military service and eligibility depend on length of service, and the applicant must be enrolled under conditions other than dishonorable if he or she is not currently on active duty.
If you are the spouse of a veteran, you can get VA credit if you meet certain conditions:
- The service member’s spouse died while on active duty or with a service-connected disability, and he or she has not remarried.
- If the soldier’s spouse was totally disabled before his or her death and did not remarry.
- If your soldier’s spouse is missing in action.
- If your soldier’s spouse is a POW.
If you remarry as a spouse of a veteran, you will only be eligible if you remarry after age 57. Children of veterans are not eligible for VA credits based on their parents’ qualifications. If you have any questions about your eligibility, please contact the Department of Health.
How VA home loans work.
The government does not issue VA loans, but it works with debtors to ensure that servicemembers and their families have access to these special benefits. The U.S. Department of Veterans Affairs guarantees a percentage of all VA mortgages, so borrowers do not have to make a down payment or pay for personal mortgage insurance (PMI).
VA loans are only available if you are buying a home in which you will live most of the time. You cannot use it to buy a villa or investment property. However, if you have a service-connected disability, you can build a home, remodel a home, or use a home more easily. You can also take advantage of VA loan benefits more than once during your lifetime.
How to get a certificate of eligibility for a VA home loan
If you decide you are eligible for a VA loan, you may need to obtain a certificate of eligibility (CoE) to present to the borrower. Your lender will not give you a VA loan or refinance an existing loan that does not have valid credit.
The evidence you need to obtain a CoE depends on your military unit and active duty status. Common requirements include:
- Military Veteran. Department of Defense Form 214 (DD214) includes a complete description of the separation and nature of service.
- Active duty service members include: A signed statement of service that describes the service member’s date of subscription, personal information (including date of birth and Social Security number), and loss of service time, if any.
- Current or former reserve and kitchen guard with active duty experience. Department of Defense Form 214 describes the nature of the unit and the nature of the service.
- This is currently a reserve and kitchen guard with no active duty experience. A signed service report describing the total length of service and time lost.
- This is an echelon reserve with no active duty experience. Certificate of meritorious service (may vary on a case-by-case basis) and a copy of the most recent retirement statement.
- National Guard service without active duty experience. Retirement transcript with service records and separation reports or certificate of honorable service for each area of National Guard service.
- Dependents and surviving spouses who receive compensation include: DD214 Veteran’s Certificate (if available) and VA Form 26-1817.
What are the benefits of VA home loans?
In most cases, you can raise 100% financing by adding the VA financing fee to the purchase price of your home. This means you don’t need a down payment unless the pre-sale is beyond the home appreciator. You can even refinance with a cash loan that takes the cash out of your home equity, depending on the amount you refinance and the amount of debt you owe on your home. This loan can be up to 100 percent of the appraised value. Unlike FHA loans or most traditional loan transactions, there are no monthly mortgage payments.
“However, a veteran may purchase a home that is priced above the loan limit in the area where the property is located, or some rights may be associated with the unsold property. “It’s a big deal,” says April Jones, manager of mortgage operations management at Regions Bank. “In those situations, a down payment may be required.”
An added benefit is that VA loan operations can’t be limited to one time only. Subsequent or additional loans may be allowed if the maximum amount guaranteed by the VA has not been reached.
In addition, the VA mortgage loan program is designed to make home buying easy and affordable, so if you build credit, you can still use a VA loan.
What is the eligibility for a VA loan?
The VA usually guarantees 25% of the loan amount if you don’t make a down payment. This is called VA loan eligibility. In most regions, your eligibility is $113,275. This means you can borrow up to $453,100 without a down payment. If you want to borrow more than $453,100, you must make a down payment.
If you have never used a VA loan before, you will be eligible for what is called “full eligibility.” VA loan eligibility is the maximum loan amount that the Veterans Office will pay the borrower in the event of a default on a mortgage loan. This guarantee reduces the risk of approval