The VA loan benefit is unique and highly valuable. Once a military member has served a minimum time on duty they become eligible to apply for this important military benefit that can be used to purchase a primary residence that will be occupied by the borrower and family where applicable.
VA Loan Eligibility
Who qualifies for a VA mortgage? Those who have served a minimum time in uniform. That time will vary depending on the era you joined, but for most entering active duty service today, 90 continuous days of active duty qualifies you for the VA home loan benefit. Those 90 days began accumulating once on active duty after basic training.
VA home loan eligibility is NOT the same as VA loan approval. Upon completion of your minimum time in service, you will have to credit-qualify for a VA mortgage the way any home loan borrower does. Being eligible for the VA loan program is not a guarantee your loan will be approved.
The VA Loan Benefit
VA home loan benefits are not transferable the way GI Bill benefits are; the VA loan option is for those who serve and while a military member and civilian spouse can apply for a VA mortgage together, the non-military spouse alone cannot use the VA loan program unless they are a surviving spouse of a military member who died as a result of qualifying military service.
Dependent children of legal age cannot use the VA loan benefit.
Military members can use their VA home loan benefit to purchase property with a non-mililary, non-spouse co-borrower, but the VA only guarantees the veteran’s portion of the loan and VA loan benefits are not extended to the civilian applicant. This is known by VA lenders as a “joint loan” or Joint VA Mortgage and you should ask for a joint loan by name if you need to apply for one.
VA Loans Are Issued By Participating Lenders
One common misconception about the VA home loan program is that the Department of Veterans Affairs lends the money, sets and regulates interest rates on VA mortgage loans, etc.
VA home loans are issued by participating lenders. You will apply for the loan through the lender, and negotiate the interest rate with the lender. The VA does not set interest rates on VA mortgages, nor does it regulate mortgage loan interest rates.
The only requirements issued by the VA for interest rates is that they must be reasonable compared to similar non-VA transactions based on market conditions.
One important thing to note about this unique home loan program; VA loan rules do not specify a credit score range for loan approval.
This is up to the lender alone and you will need to shop around for a participating VA lender willing to work with you and your credit scores. Not all lenders offer the same rates and terms; shopping around for a VA lender will help you get a more affordable mortgage.
No Down Payment VA Loans
VA mortgages offer the borrower the ability to buy without a down payment. You must be financially qualified to get a zero-money-down VA mortgage. Some borrowers with marginal FICO scores may be required to make a down payment as a “compensating factor”. Lender requirements vary in this area, so borrowers must ask a loan officer what the FICO score standards are at that financial institution.
Down Payments And The VA Loan Funding Fee
VA borrowers typically have the option not to make a down payment. Some choose to anyway. Why would they? Because it can reduce other expenses on the VA home loan. Specifically, a down payment of the right size can reduce the amount of the VA Loan Funding Fee borrowers must pay as a cost of doing business with the mortgage.
Some VA borrowers are exempt from paying this fee–if you receive or are eligible to receive VA compensation for service-connected medical issues, you may be exempt from this funding fee. The exemption must be applied for–ask your loan officer about this process if it applies to you or will apply to you after the VA makes a determination on your claim.
VA Loan Limits
VA home loan rules changed in 2020; those with 100% VA home loan entitlement (including first-time applicants for the VA home loan program who qualify) have no VA-imposed home loan limit. What does this mean?
The VA official site states, “Eligible Veterans, service members, and survivors with full entitlement no longer have limits on loans over $144,000.” The site adds that this is with zero down payment required and the VA guarantees such loans (over $144,000) for up to 25% of the loan amount.
To qualify, at least one of the following must apply:
- The applicant has full VA mortgage entitlement because they have never used their VA loan benefits before OR;
- The applicant has paid off a previous VA loan in full and sold the property OR;
- The applicant has used the VA loan benefit, “but had a foreclosure or compromise claim (also called a short sale) and repaid us in full” according to VA.gov.
VA Loans Are For Owner-Occupiers Only
VA mortgage loans can only be used to buy primary residences-a home the buyer intends to live at as their main address. Military deployments, temporary duty, and similar assignments are not considered a violation of the owner-occupier rules; it is understood that a military member may be sent to a war zone, deployed to another country, sent on temporary duty elsewhere, etc.
Military members can purchase a home without occupying it as their primary residence as long as a spouse or qualifying dependent occupies the property on their behalf. This exception to the VA loan occupancy rules is only for immediate family members as described above.
VA Loans Are Not For Investment Properties
VA mortgages are permitted for residences with up to four living units. However, a borrower cannot purchase a home to use as a rental property unless the borrower intends to occupy one of the living units. You cannot purchase an investment property with a VA mortgage loan-occupancy is always required.
VA loan rules do not permit loans for business enterprises like time shares, Air b-n-b type operations, frat or sorority houses, bed and breakfasts, etc.
VA Loans Are For Many Different Types Of Homes
Qualified borrowers can apply to purchase suburban homes, but also condo units, townhouses, manufactured homes, and mobile homes. You can also apply for a VA construction loan to build a home instead of buying an existing property.
VA Loans Can Refinance An Existing Mortgage
You can use your VA loan benefit to refinance an existing non-VA mortgage. Borrowers do not have to use the same lender as the original mortgage, and you will find VA mortgage loan interest rates more competitive than some conventional mortgages. Refinancing into a VA mortgage loan may make sense for those looking for a lower mortgage rate or interested in getting out of an adjustable rate mortgage into a fixed-rate VA loan.
Remember, interest rates are offered to a borrower based on FICO scores and other financial qualifications. Some borrowers may not be eligible for the most competitive rates if credit scores are lower or “marginal”. Speak to a loan officer about your ability to refinance an existing non-VA mortgage into a lower rate based on your credit qualifications.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News