The Ins and Outs of VA Home Loans
The Department of Veterans Affairs (VA) mission is to serve service members. One way they do this is by offering home loans that consider the needs of military families.
Is the VA a lender?
In most cases, the money for the loan does not come from the VA. All VA Home Loans can be categorized as one of the following:
For VA Direct Home Loans, the VA does act as the lender. This means they will work directly with the service member to manage the loan. For instance, the Native American Direct Loan (NADL) program is a VA Direct Home Loan.
With a VA-Backed Home Loan the VA does not act as a lender. Instead, the VA is there to guarantee a percentage of the loan to the lender in case the service member cannot repay the loan. VA-Backed Home Loans are the most common type of VA loan service members get since it gives favorable terms to work with private lenders such as a bank, mortgage company, or credit union.
For the rest of the article, VA Home Loans refers to VA-Backed Home Loans.
What is a VA Home Loan?
A VA Home Loan may provide better financing terms for service members and their family. VA Home Loans are made through private lenders such as banks, loan associations, or even mortgage companies. If the loan is approved by the lender, the VA guarantees a portion of the loan, allowing the lender to give the service member a better rate.
VA Home Loans may be used to buy, build, repair, retain, or adapt a service member’s home.
What are the advantages of a VA Home Loan?
VA Home Loans differ case-to-case, but they have many advantages and benefits< that non-military mortgages do not have.
No Down Payments:
Because of the guarantees a VA Home Loan provides, private lenders may not require a down payment.
Some closing costs may be paid by the seller or lender.
Low Interest Rates:
VA Home Loans have some of the most competitive interest rates in the home loan market.
No Private Mortgage Insurance:
Veterans do not have to pay for .
One-time Funding Fee:
The VA Home Loan program charges a one-time funding fee. Certain veterans and service members are exempt from paying the funding fee. Members of the military community that are not exempt may pay this fee at closing or include it in their loan.
Reusable Benefit:
Members of the military community may use the benefit more than once if eligible. <
Minimum Property Requirements:
VA loans have minimum property requirements to ensure the home is safe, sound, and sanitary.
No Penalty for Prepayment:
There is no penalty for making additional payments to the loan. Paying the loan earlier saves the borrower money because they do not have to pay interest for as long.
Assemble Mortgage:
When the service member sells their home, they may choose to have VA-eligible buyers take over the home loan. The qualifications of the buyer will be reviewed and approved by the VA or the lender.
VA Staff Assistance:
Service members who are having a temporary financial difficulty, the VA has loan technicians who may assist with the member’s specific situation.
Will I have to pay a VA funding fee?
Service members, veterans, or spouses who meet the following do not have to pay a VA funding fee:
- Receiving VA compensation for a service-connected disability, or
- Eligible to receive VA compensation for a service-connected disability, but they are getting retirement or active duty pay instead, or
- The surviving spouse of a Veteran who died in service or from a service-connected disability, or who was totally disabled, and they are receiving Dependency and Indemnity Compensation (DIC), or
- A service member with a disability rating, before being discharged and before the loan closing date, saying they are eligible to get compensation because of a disability claim, or
- A service member on active duty who, before or on the loan closing date, received the Purple Heart.
Who is eligible for a VA Home Loan?
VA Home Loans are available to eligible members of the military community such as service members, veterans, members of the National Guard and Reserves, and military spouses. Any service member that has been dishonorably discharged may not receive the VA Home Loan benefit. To find out more about upgrading a discharge status, visit Veterans’ Consortium Pro Bono Discharge Upgrade Program
Those eligible will get a Certificate of Eligibility (COE) to show their lender. This proves that they qualify based on their history and duty status.
Who can I contact with questions about eligibility for a VA Home Loan?
Call the VA regional loan center for any questions about eligibility:
877-827-3702
Monday through Friday
8:00 a.m. to 6:00 p.m. ET.
Find the nearest regional loan center.
What VA Home Loans are available?
The VA offers three home loan guarantee programs for service members, veterans, National Guard, and Reserve members.
A Purchase Loan can help service members buy a home at a competitive interest rate. In most cases, service members do not have to make a down payment or buy mortgage insurance to obtain a purchase loan.
Interest Rate Reduction Refinance Loan
Service members and veterans can obtain a lower interest rate by refinancing your existing VA loan. They may also refinance a VA adjustable-rate mortgage (ARM) into a fixed rate mortgage.
For service members and veterans who would like to refinance their mortgage so they can pay other debt, pay for school tuition, or make home improvements, then VA’s Cash-Out Refinance Loan may be an option. The Cash-Out Refinance Loan may also be used to refinance a non-VA loan into a VA loan. VA will guarantee loans up to 100% of the value of their home.
The VA also offers two other types of loans for housing purposes.
Native American Direct Loan (NADL) Program]
The NADL program helps eligible Native American Veterans finance the purchase, construction, or improvement of homes on Federal Trust Land, or to reduce the interest rate on an existing NADL. These loans are only available if a memorandum of understanding exists between the Tribe organization and VA.
Adaptive Housing Grant Programs:
Service members or veterans with service connected, physical disabilities may be entitled to grant funds. Three different grant types may be used to buy, build an adaptive home, or modify an existing home to meet their needs.
Can I use my VA Home Loan benefit more than once?
Eligible members of the military community may use their VA benefit more than once if they “restore” their entitlement. An entitlement is the amount the VA will pay back the lender in case the service member can no longer pay for the house. Typically, the VA attempts to make entitlements that cover 25% of a loan.
If a service member already has a VA loan, an entitlement amount is provided on their Certificate of Eligibility which is how much the VA will guarantee to the lender. This entitlement is being used until the loan is paid back.
To restore entitlement, one of the following must be true:
- The home was sold, and the prior loan repaid in full,
- A qualified veteran agreed to take over the loan, or
- The prior loan has been paid in full, but the home bought with that loan has not been sold (this can only be done once).
To request an entitlement restoration, a copy of a Request for a Certificate of Eligibility needs to be completed and sent to the VA regional loan center of the service member’s state.
Download VA Form 26-1880
Find a state’s VA regional loan center
Are there any lending limits for VA Home Loans?
There may be lending limits depending on how much the service member or veteran is eligible for a VA loan entitlement. The entitlement amount will vary depending on the cost of homes in an area.
Lending limits are tied to the loan entitlement amount a service member receives, meaning that the more entitlement a service member is eligible for, the more money they can borrow from a lender.
With full entitlement
Service members and veterans who have done one of the following are eligible for higher lending limits with VA loans:
- They have never used their home loan benefit,
- They have paid an earlier VA loan in full and sold the property (in this case, they would have their full entitlement restored), or
- They have used their home loan benefit but had a foreclosure or compromise claim (also called a short sale) and repaid the VA in full.
Not having a loan limit does not mean that a loan of any amount can be taken out. Lenders will still consider a service member or veteran’s credit history, income, and assets when deciding how large of a loan the service member can afford.
With partial entitlement
Service members who already used their entitlement over a VA Home Loan may be eligible for another loan, but they are given a smaller entitlement amount. By having a smaller entitlement amount this means that the loan limit should be smaller.
Service members or veterans may have partial entitlement if any are true:
- Have an active VA loan they are still paying back,
- Paid an earlier VA loan in full and still own the home,
- Refinanced their VA loan into a non-VA loan and still own the home,
- Had a compromise claim (or short sale) on an earlier VA loan and did not repay the VA in full,
- Had a deed in lieu of foreclosure on an earlier VA loan (this means they transferred their home’s title to the bank that holds the mortgage to avoid foreclosure), or
- Had a foreclosure on an earlier VA loan and did not repay the VA in full
While the VA may allow a service member to use their partial entitlement left for a second loan, a lender may approve a service member for a loan bigger than the lending limit connected to the entitlement given by the VA. In this case, the VA will guarantee only the amount of the partial entitlement.
Do I need a certain credit score to qualify?
There is no minimum credit score required by the VA, but some lenders may have credit score requirements. Be sure to contact different lenders about any credit requirements.
Do all lenders offer a VA Home Loan?
Not all lenders have dedicated lending options for service members. To know which lenders do work with the VA ask them directly.
Do I have to live in the home I buy with a VA Home Loan?
VA Home Loans are designed to be used as a service member or veteran’s primary home. However, there are options for when a service member cannot live in the home because of deployment, having received Permanent Change of Station orders, or because the house needs repairs.
Primary Residence Requirement
When applying for a VA Home Loan, the applicant must show that they intend to live in the property as their home. Second homes or investment properties do not qualify for a VA loan.
Spouse Occupancy
The service member or veteran’s spouse can meet this requirement of the VA Home Loan by living in the home while the member is deployed or has long distance employment.
Dependent Occupancy
A dependent child may live in the home while their parent is away on active duty. However, an attorney or the legal guardian of the child needs to certify that they are living in the home. Some lenders may disagree on whether a dependent occupancy meets the VA Home Loan requirement.
Retirement Occupancy
Veterans who are retiring within 12 months from when applying for a VA Home Loan need to include a copy of their retirement application and documentation of requirement stability. Retiring veterans may apply to not move into the home right away for up to 12 months.
Delayed Occupancy
For borrowers who were delayed moving into a property because of repairs, their occupancy requirement may be considered delayed. They must agree to live on the property as soon as the improvements are completed.
Part of the requirements of a VA Home Loan is that the service member or veteran moves into the property within 60 days of when the loan closes.
Besides the exceptions listed above, the VA may waive the 60 days occupancy requirement if:
- The service member or veteran can show that they will live in the home on a specific date after the VA loan closes, and
- There is a specific event in the future that will make it possible for a member to live in the home on that date.
Typically, the VA does not give exceptions that are longer than 12 months after the loan closes.
What happens if I do not live in the home?
Lenders make sure the borrower (service members) meets and continues to meet VA Home Loan requirements. The VA’s role is to guarantee the loan and to select who is eligible for that benefit by awarding COEs.
The VA does not look over occupancy requirements. Lenders decide what type of consequences may be taken. Since the VA’s primary role is to guarantee the loan, they may no longer support the service member by guaranteeing the loan to the lender.
Can I get a VA Home Loan to buy a home in a foreign country?
No. The property needs to be in mainland United State, its territories, or possessions.
Are there rules for what type of property I can buy?
VA Homes Loans can be used to buy condos, manufactured homes, and multifamily homes (as primary residences). However, loans may not be issued for manufactured homes; the service member would have to ask the lender.
The VA keeps a list of approved condos complexes. If the condo complex is not listed on the site, then it needs to be submitted to the VA for review to make sure it meets all VA requirements.
Can I build a home with a VA Home Loan?
Yes, a VA Home Loan can be used to build a home. However, there are more requirements for the construction to be eligible.
Can someone co-sign a VA Home Loan?
Yes. Other people may sign a VA Home Loan with a service member. However, the VA only guarantees the service member’s part of the loan. Unless the other person is the service member’s spouse, then a civilian’s part of the loan is not covered by the VA. Joint loan applications should be discussed with the lender to check for eligibility.
What happens if I divorce while on a VA Home Loan?
Unless the house is refinanced with a different loan, the civilian spouse would be in violation of VA occupancy regulations if they get the house in a divorce. If the spouse stays in the home, while making payments on the VA loan, the service member or veteran will not be eligible for another VA loan. Once the spouse pays off the VA loan or refinances, the veteran or service member may then reapply.
It may be possible for the service member or veteran to refinance to buy the share of the house from the ex-spouse.
If I pass away before the loan is paid off, will the VA pay the rest of the loan balance?
No. Surviving spouses or coborrowers have to continue to pay the loan. In cases where the service member was the only borrower on the loan, then the loan is the responsibility of the service member’s estate. Failure to pay the loan will result in foreclosure.
Can I be eligible for a VA Home Loan even if I had a previous bankruptcy or foreclosure?
VA Home Loan applicants are evaluated for risk and expected income. When underwriting the loan, past bankruptcy or foreclosure does not automatically disqualify an applicant. Lenders may still look at the reasons for bankruptcy and the type of bankruptcy.
Typically, there is a 2-year waiting period for Chapter 7 bankruptcy filing, a 1-year waiting period for a Chapter 13 filing, and 2-year waiting period for foreclosures to qualify for a VA Home Loan.
What can I do if I fall behind on my loan payments?
If the service member or veteran used a VA loan to buy the home, the VA can help with any delayed payments. Contact the VA at (877) 827-3702 to reach the nearest Loan Guarantee Office. The VA can provide a specialist to work with the lender and help explore all options to avoid foreclosure.
If a veteran or service member does not have a VA Home Loan, they may also call the same number for help.
Where can I learn more about VA Home Loans?
The VA’s Home Loan page has dedicated information, resources, and guidance for how to get and use a VA Home Loan.
More in-depth details and information can be found in the VA Home Loan Guaranty Buyer’s Guide.