The VA Guaranteed Loan is a zero down-payment loan available to military service members including active duty members, reserve/guard members, disabled veterans and veterans serving in past wars, varying depending upon their length of service.
VA home loans can sometimes be used by an unmarried surviving spouse of a veteran as well.
VA Loan Eligibility
The best way to determine eligibility is to obtain directly from the VA a “certificate of eligibility.” Most lenders can easily access this form online through the VA.
If a borrower has previously purchased a home using their VA benefit, it is possible to restore their eligibility for the purchase of a new home if the previous home has been sold and the loan repaid, or if they are in the process of selling the home.
Advantages of VA Home Loans
There are several advantages to VA home loans. In addition to zero down-payment, the loan also has no mortgage insurance, allows seller contributions to closing costs, is a bit more lenient on derogatory credit issues and does not have cash reserve requirements.
The VA loan does have an upfront funding fee which can be added into the loan. There are cases in which a veteran may be exempt from the funding fee, most commonly when they have suffered a disability. The program can be used to purchase a home, build a home or refinance a home. The home must be the borrower’s primary residence.
Applying for a VA Loan
The process of applying for and obtaining a VA loan is very similar to applying for any other type of loan program. Other than verifying veteran eligibility and completing a few disclosure forms that are specific to the VA program, the process is the same. Many people also mistakenly believe that it will take longer to obtain a VA loan, which is not the case.
In addition to verifying eligibility, the lender will also review the veteran’s debt to income ratio. For active duty military, it is important to review the Leave and Earnings Statement carefully as there are often a variety of categories of pay that military members receive, including base pay, hazard duty pay, cost of living and housing subsidies, as well as other job specific pay categories. While most of these are allowable income, there are some that may be considered temporary or that have not been received long enough to be considered stable income. In general the pay category should have been received for the past two years and be expected to continue into the future.
VA Interest Rate Reduction Refinance Loans
The VA also provides loans for existing VA mortgage holders to allow a reduction of the current interest rate. These loans are referred to as IRRRL or “interest rate reduction refinance loans.” They are also sometimes referred to as “streamline” refinances because they are typically done with reduced documentation. In many cases there is no requirement for an appraisal or credit report, but this may vary by lender. This program can also be used to go from an adjustable rate VA loan to a fixed rate loan.
Great No Down-Payment Loan Option
VA home loans are a great no down-payment loan option for qualifying veterans, which should be considered by any military members seeking to buy or refinance a home mortgage.