Home ownership is part of the American dream, and that’s no different for members of the U.S. Armed Forces. U.S. Department of Veterans Affairs (VA) Home Loans have helped make this dream a reality for nearly 22 million veterans and service members since 1944.
Once approved by the VA, these loans are provided by private lenders (banks and mortgage companies) and typically do not require a down payment or mortgage insurance because the VA guarantees a portion of the loan against loss, allowing the lender to provide more favorable terms.
Though the VA does not require a minimum credit score, most lenders do use credit score benchmarks as low as 620 making the loans easier to obtain for service members. Additionally, military buyers do not have to be first-time home buyers and can reuse this benefit.
With that in mind, VA Home Loans are meant to help veterans and service members obtain permanent housing. So, there are conditions on the types of properties buyers can purchase – you won’t be buying a farm or vacation home in Italy with a VA Home Loan.
Here’s a closer look at what can and can’t be purchased with a VA Home Loan.
VA Home Loans can be used to purchase:
- An existing home, or a condominium or townhouse in a VA-approved project. For condos or townhomes, the entire complex must be approved by the VA before the buyer can receive a loan for one unit. See the VA’s list of approved complexes here.
- A multi-unit property (up to four-plex), provided the buyer occupies one of the units. If more than one veteran is buying, then one additional unit can be added to the four. Additionally, if rental income from the property dictates whether or not the veteran can qualify for the loan, then the veteran must show that he or she has the background needed to be a successful landlord and have enough cash reserves to make payments on the property for six months without rental income.
- A manufactured (mobile) home or a modular home. Finding a lender to finance these types of homes can be difficult because they’re considered depreciating properties, although modular homes are more likely to appreciate – making finding a lender slightly easier. Additionally, manufactured and modular homes must meet certain conditions, like being affixed to a permanent foundation.
- A new construction. However, builders, plans, and building sites must be VA-approved, require several inspections, and the builders must provide at least a one-year warranty. Also, many lenders are hesitant to accept zero down financing for new constructions. Alternatively, veterans can obtain a non-VA Home Loan and refinance the home with a VA Home Loan once the building is complete.
- To simultaneously purchase and improve a home with energy efficient improvements. Improvements can include, but aren’t limited to, thermal windows and doors; insulation for walls, ceilings, attics, floors, and water heaters; solar heating and cooling systems; furnace modifications (not a new furnace); heat pumps; and vapor barriers.
VA Home Loans cannot be used to purchase:
- Property in a foreign country. Homes purchased using a VA Home Loan must be located in the United States, its territories, or possessions (Puerto Rico, Guam, Virgin Islands, American Samoa, and Northern Mariana Islands).
- A cooperatively (co-op) owned apartment. Financing for these types of shared ownership properties expired in 2011.
- A farm. If purchasing a farm, there must be a residence on the property which the veteran will occupy.
- Vacant land. There must be immediate plans to build a home on the property, but new constructions come with their own set of financing red-tape with the VA Home Loan (see section above).
- Investment property or a second home. Remember that VA Home Loans are intended to help veterans and military find permanent housing – second homes and investment property are considered surplus.
- A business loan.
Options for refinancing a VA Home Loan:
- Veterans who already have a VA Home Loan can reduce their monthly payments or shorten the terms of their existing loan through a program known as the Interest Rate Reduction Finance Loan. The VA does not require a credit check or appraisal for refinances, but some lenders do.
- The VA allows veterans who have equity in their home to get cash back when refinancing. However, some lenders may not allow cash-out refinancing or will allow the homeowner to refinance up to 100 percent of the home’s value to pay off an older mortgage.
- If a service member purchased a home using a conventional loan, he or she is eligible to refinance the mortgage into a VA Home Loan.
If you’re ready to buy a home using a VA Home Loan, be sure to check with your lender on what options are available to you before you go house hunting as this listing is not exhaustive. The VA Home Loan process begins with filling out a Certificate of Eligibility through the VA – get started and learn more here.
Kristen Baker-Geczy is a communications specialist, active duty military spouse, and former MWR marketing coordinator. She was also deployed to Southwest Asia as an Air Force contractor.
