VA Home Loan Basics

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VA Home Loan Basics2020-07-22T05:08:58-07:00
VA Home Loans – 100% Mortgage Financing for United States Veterans backed by the Veteran’s Administration
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Authored and Organized by Jason Turner, Mortgage Broker, NMLS# 1148074 and published by Vetted VA

Disclaimer: Information can change.  Always work with a Vetted VA professional and check current resources for up to date regulation and guidelines.

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VA Loan Details

Reasons to Consider a VA Loan2020-05-22T14:27:06-07:00
  • No down payment required
  • VA funding fee may be financed in the loan
  • VA Loans do not require perfect credit –there is no credit score cut-off
  • VA funding fees may be waived for Veterans with service-connected disabilities and surviving spouses of Veterans with service-connected disabilities
  • Closing costs may be shared between the buyer and lender
  • Flexible mortgage types – fixed, hybrid and traditional ARMs
  • No mortgage insurance premiums – this is huge in today’s housing market
  • VA guaranteed mortgages are assumable
  • No pre-payment penalties
  • Homes are inspected and appraised by VA prior to approval and/or during construction
  • VA can offer assistance to Veteran borrowers in default due to temporary financial difficulty
  • Refinance and Interest Rate Reduction loans are available

All in all, the pros far outweigh the cons. And, considering there are very few “no-down payment” mortgage options around that offer lower associated fees, using your VA home loan benefit seems like a no-brainer – as long as the red tape doesn’t scare you.

Application Steps2020-05-22T13:53:48-07:00

There are four basic steps in the VA home loan application process.

Step 1: Select a Lender

A lender can help you review your financial situation and credit history and determine the loan amount you qualify for. Choose a lending institution that is VA approved and can handle home loans

Step 2: Select a Home

Select a home and discuss the purchase with the seller or selling agent. Sign a purchase contract conditioned on approval of your VA home loan. Present your Certificate of Eligibility (if available) to the selected lender and complete a loan application. You can also get your Certificate of Eligibility from your lender through the Automated Certificate of Eligibility (ACE) system. This Internet-based application can establish your eligibility and issue an online Certificate of Eligibility in a matter of seconds. However, not all requests can be processed through ACE – only those veterans for whom the VA has sufficient data are eligible for this streamlined process.

Step 3: Submit the Application

The lender will process the required loan documentation and develop all credit and income information. They will also request VA to assign a licensed appraiser to determine the reasonable value for the property. A Certificate of Reasonable Value will be issued.

NOTE: You may be required to pay for the credit report and appraisal unless the seller agrees to pay.

Step 4: Loan Approval, Funding, and Closing

The lender will let you know the decision on the loan. You should be approved if the established value and your credit and income are acceptable. You (and spouse) attend the loan closing. The lender or closing attorney will explain the loan terms and requirements as well as where and how to make the monthly payments. Sign the note, mortgage, and other related papers.

Borrowing Limits2020-05-22T13:22:01-07:00

There is no maximum loan amount; however, VA does limit its guaranty.

VA loans have no loan limit any more as of January 1, 2020. If you make a down payment, your lender may loan a larger amount. While not a down payment, the guaranty often satisfies the lenders’ requirement that a portion of the home price be paid for up front (i.e. the down payment). This can save the home buyer the burden of making a down payment.

The loan maximum itself may be up to 100 percent of the VA established reasonable value of the property. In addition, certain funding fees and closing costs apply, and you must be able to pay a portion of these fees up front. Generally, these fees range from 1.4 percent to 3.6 percent of the total loan.

Eligibility Details2020-04-29T12:43:24-07:00
  • WWII: 9/16/1940 to 7/25/1947
  • Korean: 6/27/1950 to 1/31/1955
  • Vietnam: 8/5/1964 to 5/7/1975

You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service connected disability.

  • 7/26/1947 to 6/26/1950
  • 2/1/1955 to 8/4/1964
  • 5/8/1975 to 9/7/1980 (Enlisted)
  • 5/8/1975 to 10/16/1981 (Officer)

You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service connected disability.

If you were separated from service which began after these dates, you must have:

  • Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a compensable service connected disability;
  • Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.

If you served on active duty during the Gulf War, you must have:

  • Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
  • Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.

If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.

If you are not otherwise eligible, you are eligible if you have completed a total of six years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and two-week active duty for training) and:

  • Were discharged with an honorable discharge, or
  • Were placed on the retired list, or
  • Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service, or Continue to serve in the Selected Reserves.
  • If you have completed less than six years you may be eligible if discharged for a service connected disability.
  • Are an unremarried spouse of a veteran who died while in service or from a service connected disability, or
  • Are a spouse of a serviceperson missing in action or a prisoner of war

NOTE: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must have applied by December 15, 2004, to establish home loan eligibility.

  • Certain United States citizens who served in the armed forces of a government allied withthe United States in WW II.
  • Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.
Eligibility Criteria2020-05-22T14:13:49-07:00

The major eligibility categories for a VA home loan include:

  • Veterans and service persons who have served 181 active-duty days during peacetime, unless discharged or separated from a previous qualifying period of active duty service.
  • Veterans who served during World War II, Korea, or Vietnam, if they served for 90 days and were honorably discharged.
  • If you have served for any period since August 2, 1990, you can also qualify if you have served 24 months of continuous active duty, or the full period (at least 90 days) that you were called to active duty.
  • Those who have completed a total of six years in the Selected Reserve or National Guard.
  • An un-remarried spouse of a Veteran who died while in service or from a service connected disability or a spouse of a service member missing in action or a prisoner of war (NOTE: A surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may also be eligible for the home loan benefit).
Conventional to VA Refinance2020-05-22T13:26:41-07:00

If you do not have a VA home loan, but are eligible for one, you can refinance a subprime or conventional mortgage for up to 100 percent of the value of the property. Usually you will be charged a funding fee if you are using your VA loan guaranty for the first time. Benefits to this type of refinancing are that your new interest rate may be lower and you will have no monthly mortgage insurance or out-of-pocket closing costs.

The Cash-out Refinance Option2020-05-22T13:28:52-07:00

The Veterans’ Benefits Improvement Act of 2008 allows you to free up cash with a cash-out refinance, a VA home loan refinance program in which you can cash-out on the equity you have built up in your home. As an example, if you still owe $70,000 on your original loan, you can refinance for a $90,000 loan, which gives you a cash-out of $20,000.

An appraisal is required, and you must qualify for the loan. If you are refinancing for the first time, VA charges a 2.3% funding fee for this program (2.3% of the total loan), which can be rolled into the loan amount. If you refinance more than once, the funding fee is 3.3%.

There is no minimum amount of time that you must own your home, yet your home must have sufficient equity to qualify for VA refinancing. Existing loans can be refinanced whether they are in a current or delinquent status, but refinancing loans are subject to the same income and credit requirements as regular home loans. As long as you have title to the property you can refinance an assumed loan. Check with your lender as there are some additional regulations concerning assumed loans.

Refinancing with a VA Home Loan2020-05-22T13:11:00-07:00

You can use your VA home loan benefit to refinance your existing VA home loan to a lower interest rate, with little or no out-of-pocket cost. This is called an Interest Rate Reduction Refinancing Loan (IRRRL), also known as a “rapid refinance” or a “streamline refinance.”

Generally, no appraisal, credit information, or underwriting is required for this refinancing option, although some lenders may require an appraisal and credit report. The fees and charges associated with the refinancing loan may be incorporated into the new VA loan.

Remember: The interest rate on the new loan must be lower than the rate on the old loan (unless you refinance an adjustable rate mortgage to a fixed-rate mortgage).

To receive an IRRRL, work with your lender to process your application. It’s generally a good idea to compare several lenders’ rates first, as there may be large differences in the terms they offer. Also, some lenders may contact you suggesting that they are the only lenders with the authority to make IRRRLs, but according to VA, any lender can make an IRRRL.

An IRRRL can be done only if you have already used your eligibility for a VA loan on the property you intend to refinance. If you have your Certificate of Eligibility, take it to the lender to show your prior use of the entitlement. The occupancy requirement for an IRRRL is different from that for other VA loans.

When you originally got your VA loan, you certified that you occupied or intended to occupy the home. For an IRRRL, you need only certify that you previously occupied it. The loan may not exceed the sum of the outstanding balance on the existing VA loan, plus allowable fees and closing costs, including the funding fee.

Reusing Your VA Home Loan Benefit2020-05-22T13:08:19-07:00

The VA home loan benefit can be reused if you have paid off your prior VA loan and sold the property.

In addition, you may, on a one-time-only basis, be able to reuse or restore your benefit eligibility if your prior VA loan has been paid in full and you still own the property.

In either case, to restore your eligibility, you must send a completed VA Form 26-1880 to your VA Eligibility Center.

To prevent delays in processing, you should also include evidence that the prior loan has been paid in full and, if applicable, the property disposed of. This evidence can be presented in the form of a paid-in-full statement from the former lender, or a copy of the Closing Disclosure (CD) settlement statement completed in connection with a sale of the property or refinance of the prior loan. Depending on the circumstances, if you have already used a portion of your VA-guaranteed amount (up to $89,912), and the used portion cannot be restored, any remaining portion of your VA guaranty is available for use on another loan. You will have to ask your lender if your remaining VA-guaranteed portion will be enough, or if you will need to make a down payment to qualify for the loan.

If you have a question about your specific case, contact VA.

Additional Information

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