Veteran Home Loans or VA Loans
A veteran home loan – or VA loan as its otherwise known – is a loan granted to United States veterans that have served or are currently serving and/or their surviving spouses. The loan helps veterans get into a home by removing the need of a down payment or mortgage insurance. They also provide approve loans in regional areas where general financing may not be available.
VA loans are of three different types:
- Cash-out refinance loans
- Interest rate reduction refinance loans (alternatively called a veteran streamline refinance loan)
- Purchase loans
The advantages of taking out a veteran home loan are numerous, but the most important is that veterans are not required to put a down payment towards buying a house. This aspect allows a lot of veterans or citizens in active military duty to purchase and own homes in a situation where they couldn’t have been able to do it otherwise.
Vet home loans benefits
Reduced costs and time are amongst the incredible benefits of a VA loan.
Savings – No down payment or mortgage insurance.
Time – Saving for a down payment isn’t easy and depending on the time it takes to save, you can easily be priced out of a market – meaning the growth of your savings doesn’t keep up with the increase in property prices, not allowing you to have the minimum deposit needed to purchase a home.
Who it’s for
Veteran home loans were created for the following:
- Reserve members
- Members of the National Guard
- Surviving spouses who have not remarried
- Active-duty personnel
These loans are meant to be used for a series of different purposes:
- Build a home
- Make home improvements for energy efficiency or installing features that are related to energy
- Purchase a VA-approved project, a condo, or a home
- Purchase a lot or a manufactured home
- Buy and improve a home at the same time
In order to be eligible for a veteran home loan, one needs to meet the following requirements:
- Must have an income that is deemed sufficient
- Must have appropriate credit
- Must have a Certificate of Eligibility (COE) that is valid
- The home the person wishes to purchase must be intended for personal occupancy
The eligibility requirements can be viewed here for veterans, military spouses, service members, and military beneficiaries.
The costs associated with a vet home loan is smaller than traditional loans, thanks to the lack of down payment and mortgage insurance, but there is a single fee that needs to be paid and it varies in value, depending on the kind of veteran and the down payment amount (if you have one). For example, a veteran who doesn’t make any kind of down payment will be required to pay a fee of 2.15 percent of the total loan, while a 10 percent down payment would reduce that one-time fee to 1.25 percent.
Veterans who are taking out a second loan and don’t make a down payment will pay 3.3 percent of the loan, while members of the National Guard and reservists pay more than active duty members by about ¼ of a percentage point. Those who are eligible for compensation for disability are not required to pay the fee at all. The vet loan calculator can be used to calculate estimated monthly payments.
How to apply for vet home loans
You can apply to the lender you choose, as long as it’s approved by the U.S. Department of Veterans Affairs. In order to request a veteran home loan, you will need a Freddie Mac Form 65, otherwise known as the 1003 form that was issued by Fannie Mae, a standardized application for a loan. As for paperwork, you will need the following:
- Copies of your last two pay stubs
- Two consecutive years of tax returns, in case you are self-employed
- Copies of the last two years’ W2 statements
- Certificate of Guarantee or DD 214
- Documents attesting the existence of additional assets, such as trust funds, savings accounts, checking accounts, financial investments, etc.
- What happens if I can’t pay the mortgage or I simply stop paying it?
One of the major benefits of taking out a veteran home loan is related to the situation in which a veteran is not able to pay the mortgage. If such a situation arises where a borrower is struggling with making payments, the VA can actually intervene to renegotiate the loan with the lender. The United States has staff dedicated to assist veterans who find themselves unable to pay. These financial counselors are meant to help with loan modifications, repayment, foreclosure alternatives, etc. If you are concerned with making your home loan repayments, call: (800) 827-l000.
- Is there a minimum credit score required?
While the U.S. Department of Veterans Affairs doesn’t impose a minimum limit for credit scores in the case of a veteran home loan, private lenders may have such requirements. Usually, credit scores need to be higher than 620. A lower credit score allowed by a lender usually comes with an increased interest rate.
- Can I take out a veteran home loan for an investment home? What about a vacation home?
Vet home loans were created to be used for the purchase of primary residences, and not investment property or vacation homes. One can only use the loan to finance the purchasing of their main home.
- What kind of income would suffice?
Your income as a borrower should be enough to be able to pay back the loan. Debt is allowed as long as it’s not in excess. The rules are generally more permissive than with traditional or otherwise conventional loans.
- What do I do in case of foreclosure or bankruptcy?
As mentioned before, financial counselors can help you find alternatives to foreclosure or bankruptcy, but even if that happens, you can still use the home loan benefits for up to two years after foreclosure or declaring bankruptcy.
- What can I do to qualify for a veteran home loan?
The first thing you need to do in order to qualify for a VA loan is to start the prequalification process with a lender approved by the U.S. Department of Veterans Affairs. This shouldn’t take more than 10 minutes, but it’s necessary. After that, you need to be preapproved, which entails an analysis of your financial portfolio, including the documents listed earlier as necessary for the application (pay stubs, bank statements, tax returns, etc.). The amount you can borrow is indicated by this portfolio. Once this process is complete, you are given your preapproval letter. However, keep in mind that neither prequalification nor preapproval are enough for you to be granted a loan and they are not a binding agreement for one.