The VA loan is a unique military benefit. It is similar to other benefits such as the GI Bill in that there is a time-in-service requirement, and you can apply for eligibility online at the VA official site. But VA loans are different than other military benefits because you are not guaranteed home loan funds simply by becoming eligible to apply.
Like all other home loans, VA loans require the borrower to credit qualify once eligibility has been established. Your VA home loan will be processed by a private lender who has been approved by the VA.
In most cases, except for VA Direct Loans for Native Americans, the Department of Veterans Affairs does not act as the lender. A participating lender approved by the VA will process and approve your mortgage.
VA mortgage loan entitlement can be used more than once, they do not favor or discriminate against first-time buyers or repeat home buyers, and you cannot be penalized for early payoff of a VA mortgage.
What VA Loans Are For
Your VA loan benefit is specifically for the purchase, refinancing, or construction of a home. VA home loans are for owner-occupied primary residences. You can purchase a home with a VA mortgage with as many as four living units.
VA borrowers are permitted to live in one or more units in a multi-unit property and rent out the unused units.
Some VA loan applicants want to know if they can use projected earnings from such rentals as part of their qualifying income; this may depend on a variety of factors including lender standards, state law, prior experience as a landlord, etc.
Your VA loan benefit is specifically for the purchase, refinancing, or construction of a home. VA loans are for real estate only, they cannot be used as personal loans, or in situations where the borrower applies to borrow more than the market value or sales price of the home with the intent of using the excess funds.
VA home loans are provided by participating lenders-your mortgage loan will not come from the Department of Veterans Affairs. However, the VA works with your lender to guarantee a portion of your loan, which lowers the risk for the lender and makes it easier for you to qualify for the mortgage.
VA loans can be used to purchase typical suburban homes, but also condo units, manufactured housing, and mobile homes. There are specific rules about condos-these must either be on or added to a list of “approved” condo projects. Special rules apply to manufactured and mobile homes; these must be fixed to a permanent foundation as a condition of loan approval.
VA loans can be used to buy, but also to refinance. You are allowed to refinance existing VA loans or apply to refinance a non-VA mortgage.
Purchase Loan Options
VA loans can be used to purchase typical suburban homes, but also condo units, manufactured housing, and mobile homes. There are specific rules about condos-these must either be on or added to a list of “approved” condo projects. Special rules apply to manufactured and mobile homes; these must be fixed to a permanent foundation as a condition of loan approval.
VA mortgages allow a range of properties to be considered for purchase under the program; condo units, mobile homes, duplexes, even farm residences. VA mortgage loans for farm residences are for the residential aspect of the property only. The commercial value of the property is not a consideration, nor can VA loan funds be used to purchase a farm business.
VA Refinance Loan Options
VA loans can be used to buy, but also to refinance. You are allowed to refinance existing VA loans or apply to refinance a non-VA mortgage.
VA refinance loan options include VA-to-VA and non-VA-to-VA. Certain VA refinance loans are only for existing VA mortgages (the VA Interest Rate Reduction Refinance Loan or VA IRRRL) and others can be used for any mortgage loan, conventional or otherwise (the VA cash-out refinance loan).
What VA Loans Are Not For
Like most federal mortgage loan options, there are restrictions on what you can purchase with a VA mortgage. The first rule in this area has been mentioned above–VA mortgages are for owner occupied primary residences. The borrower or their immediate family must occupy the home within a reasonable time after closing, usually 60 days.
Some properties are, by their very nature, not an option under the VA loan program. These include condo-hotels, bed and breakfasts, vacation homes, or “intermittent occupancy” properties.
VA Loans: Not Approved For Non-Residential Use
VA loans cannot be used for houseboats, recreational vehicles, and mobile homes that will not be placed on a permanent foundation. Since these cannot be taxed or classified as real estate, they are not eligible for a VA loan.
Mixed-Use Property
Any mixed-use property secured by a VA mortgage must be primarily residential. Zoning issues may matter to your participating lender, but VA loan rules defer to the local authority in this area. You will need to see what your local laws say about zoning for the building you wish to purchase.
VA Loans: A Certificate Of Eligibility Is Required
When a borrower becomes eligible for a VA mortgage, the lender will need to see a VA Certificate of Eligibility (VA COE) in order to process your loan application. Fortunately, your lender is allowed to help you request this form from the Department of Veterans Affairs.
The VA COE tells the lender that you are eligible for a loan, how much VA loan entitlement you have remaining (those who have never purchased before have 100% VA loan entitlement), and whether or not you are exempt from paying the VA loan funding fee.
Be sure to ask your lender about the VA loan funding fee issue: those who receive or are eligible to receive VA compensation for service-connected medical issues may apply for an exemption of the funding fee.
The exemption is not automatic. In cases where you await a VA decision on a medical claim, your lender may require you to pay the funding fee and apply to have it refunded later once your claim has been approved.
What You Should Know About VA Home Loans
VA mortgages can be a bit tricky because the rules are different when applying for a VA mortgage with a non-military spouse (the legally married couple is allowed to apply for the VA loan without consideration of the non-military borrower’s civilian status) compared to applying to borrow with a non-spouse who is a civilian.
The simplest way to address this issue is this: a married couple is treated like a military family by the lender–the veteran’s full VA loan entitlement may be used to get the mortgage.
The co-borrowers who are not married and not both military are treated differently. The veteran’s portion of the loan is guaranteed by the VA, but not the civilian.
The VA borrower’s VA loan entitlement is only charged for the amount they are financially obligated for on the mortgage. The veteran cannot take an unequal share of the financial burden of the mortgage.
VA Loan Funding Fees
VA mortgages require the payment of a VA funding fee, and while there is no down payment required in typical VA loan cases (where the appraised value does not come in lower than the asking price) there IS a benefit to making a down payment on a VA mortgage–the VA loan funding fee is reduced if you put enough down.
Military couples who are legally married are entitled to the VA loan option but if the couple gets divorced, the non-military spouse does not retain access to the VA home loan program. That means that the divorced non-military spouse cannot apply for a new VA purchase loan.
VA Loan Assumptions
VA loan benefits cannot be passed on to dependent children, though VA home loans may be assumed by a non-military borrower if the lender approves.
However, loan assumptions can complicate a VA borrower’s entitlement options next time they decide to look for a home–be sure to ask a loan officer about the consequences of having a VA mortgage loan assumed and what it may do to your ability to qualify for a new VA mortgage should you apply before the assumed loan is fully paid off by the new owner.
Why? Because the VA loan entitlement used to purchase the home remains in use, even if it’s not by the original borrower.
You may not have access to that entitlement until the new owner refinances, sells, or otherwise fulfils the original loan amount. Discuss this important aspect of VA loan assumption with a participating VA lender BEFORE you commit.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
