Buying a Home Using the VA Home Loan Benefit

1) What Is a VA Home Loan?

2) Who Is Eligible for a VA Home Loan?

3) Applying For a VA Home Loan

4) Types of VA Home Loans

5) VA Loans Frequently Asked Questions

1) What Is a VA Home Loan?

Civilian lending sources such as banks, credit unions and mortgage companies provide money to the Department of Veterans Affairs (VA) to be available to military personnel for home loans. VA-guaranteed loans differ from conventional loans in that these loans:

• guarantee payment to your lender (if you should default on the loan)
• limit the types of closing cost fees you have to pay
• allow you to make a small or no down payment
• may have lower barriers for qualification
• save you the cost of paying private mortgage insurance

VA loans are usually used to buy a home, condominium, townhouse, or manufactured home, but they may also be used to:

• cash out home equity
• refinance at a lower interest rate
• build a new home
• update or repair your current home

VA home loan limits start at $417,000 and vary according to home values in the area. If you are looking at a more expensive home, you will likely have to pay the additional amount from your private funds.

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2) Who Is Eligible for a VA Home Loan?

There are various eligibility requirements for veterans and servicemembers alike. To qualify for a certificate, you must be a veteran, on active duty, in the National Guard or Reserves, or a military spouse. Veterans should complete the Certificate of Eligibility Request and send it to their Regional Processing Center. Active duty servicemembers and those in the Selected Reserves should submit a statement of service letter and a VA Form 26-1880.

Eligibility guidelines include the following categories:

Service after September 7, 1980. The servicemember qualifies after:

• completing 24 months of continuous active duty or
• if mobilized, serving the full period of not less than 181 days and
• being discharged under conditions other than dishonorable

Wartime Service. The servicemember qualifies after serving at least 90 days on active duty and having been honorably discharged.

Peacetime. The servicemember qualifies after 181 continuous active duty days and cannot have a dishonorable discharge.

Less than 181 days of active duty service. If a servicemember has less than 181 days of continuous active duty service, he/she must have been discharged due to one of the following:

• an involuntary reduction in force
• certain medical conditions
• a service-connected disability
• the convenience of the Government

Current servicemembers. Active duty servicemembers are eligible after 181 days of service and Selected Reservists are eligible after six years of service.

Spouses. Spouses are eligible if their sponsoring servicemember:

• is missing in action
• is a prisoner of war
• died while serving or as a result of a service-connected disability

Public Health Service officers, military academy cadets and midshipmen, as well as National Oceanic & Atmospheric Administration officers are also eligible to apply for VA home loans. Holding an approved certificate does not guarantee your VA home loan will be approved; it does, however, mean you meet the necessary period of service to continue with the process.

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3) Applying For a VA Home Loan

The actual VA home loan application process starts after you receive your approved Certificate of Eligibility and continues with a number of steps. Put simply, these include:

• finding a VA-approved lender
• applying for a loan
• selecting your home
• drawing up the purchase contract
• getting the property appraised
• closing the loan

Credit Report

You can obtain a copy of your credit report for free and your actual credit score can be revealed for a small fee. Carefully look over your credit report for errors and contact the credit bureaus and the creditor to have errors corrected, in turn improving your credit score. You might be surprised what you find on your report. By having a clean credit report, you can save time, money, and frustration when you begin home shopping.

Finding a VA-approved Lender

When shopping for a VA lender, get Good Faith Estimates from several sources. Compare the interest rates, lender fees, and loan conditions. Talk to the most competitive providers and choose a loan agent with whom you feel comfortable discussing personal financial topics. It's important to work with someone experienced in VA financing--many loan officers don't understand all the rules and nuances, and it can make a difference.

Applying For Your VA Loan

Apply for your mortgage, providing income documentation (tax returns, W-2s, pay stubs), and proof of your assets (account statements). Getting pre-approved for your loan means you won't shop for homes you can't afford, and when you make an offer, it should be viewed more favorably by sellers--they know you're in a position to close on the purchase.

Selecting Your Home

Now the real fun begins--hunting for a home. In general, searching online and thumbing through some real estate guides will be time well spent. When you work with an agent, be sure to use a real estate agent who has experience with VA purchases. There are particulars, such as which condo projects are VA-approved, that an inexperienced agent won't know to check.

The Offer and Acceptance

When you find a property you want to buy, you'll need to make an offer to the seller. To do this, your real-estate agent will prepare a formal offer. Listen to your agent. If you don't understand something (who pays for what?), ask the agent to explain. Once you agree with everything, initial, sign, and date the contract as directed by your agent. Your agent presents your offer to the seller and one of three things happens:

• The seller accepts your offer and you can proceed with the purchase process
• The seller counters your offer, allowing you to re-counter or move to another property
• The seller declines your offer, allowing you to continue shopping for a new home

Securing the Property Appraisal

To get a zero-down loan, the property must appraise for at least the sale price. The home must be appraised by a VA-approved appraiser before you can complete the purchase. The lender takes care of requesting the appraisal.

Many buyers confuse an appraisal with a home inspection. An appraisal establishes the value of the home, but not the condition. If you want a home inspection, it is your responsibility to ask for one. By getting a home inspected, you get peace of mind knowing everything: foundation, the electrical, plumbing, heating/AC systems, along with the appliances, roof, etc. are all in working condition. Many times the seller will pay to correct deficiencies found during the inspection--or they may lower the selling price so you can pay for the repairs.

Closing the Loan

Once your loan is approved, you can close on your purchase. The closing is a meeting when you transfer home ownership from the seller to you. This meeting is handled by either a closing agent or a title company. Even with a VA-guaranteed loan, the costs can be considerable--make sure the costs on the closing statement don't differ substantially from the costs disclosed on the last Good Faith Estimate you received from your lender.

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4) Types of VA Home Loans

You may choose a fixed rate or an adjustable rate mortgage (ARM). With a fixed rate mortgage, your interest rate is unchanged over the life of the loan. If interest rates increase, a fixed-rate loan saves you money. With an ARM, the interest rate fluctuates over the life of the loan. If interest rates fall, an ARM could be a good choice--when interest rates fall, you don't have to refinance to get the lower rate. VA-approved ARM loan adjustments are capped at 1% per year, and up to 5% over the life of the loan.

Besides building, buying, remodeling or refinancing, you may use VA loan money to:

• buy up to a four-unit rental income property, if you live in one of the units
• buy a manufactured home with or without a lot, or build on a manufactured home lot
• install solar heating/cooling systems or make other energy use improvements

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5) VA Loans Frequently Asked Questions

Some of the more common VA home loan questions include:

a. Can I purchase a home in a foreign country?

-- No, the home must be located within the United States or its territories.

b. Can I take out a loan for a second or vacation home?

-- No, not unless you plan to make it your permanent residence.

c. My VA loan was assumed and the borrower defaulted on the loan. Now I'm trying to get a new VA loan, but I am told I used my eligibility. Why?

-- The Government suffered a loss on the loan and they can't restore your eligibility until the loss is repaid.

d. If I've already used my entitlement, can I use it again?

-- Yes, in a couple of ways:

• If your current home is VA-financed and you pay off the loan, but still own the home, you can get an additional one-time entitlement for another VA loan.
• If you sell your home and pay off the VA loan, your entitlement can be re-established. You can use this scenario as many times as you like.

e. Can children of a living or deceased veteran qualify for the home loan benefit?

-- No, children are not eligible to use the home loan benefit.

One benefit of your military service is being able to apply for a VA home loan whether you are buying your first or fifth home--no matter if you have separated or are still serving. If you are looking to buy a home, take advantage of your military benefits and inquire into a VA mortgage. In the end, these loans can save you thousands of dollars in lower closing costs and not needing to buy private mortgage insurance.

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