What Are Veteran Home Loans?
Signed by President Franklin D. Roosevelt in 1944, the GI Bill has arguably had one of the greatest impacts on the overall economy of the United States. The GI Bill established benefits for service men and women and their families. Included with the GI Bill was the Veteran Home Loan program. With the advent of veteran home loans, homeownership came within the grasp of millions of American military members.
Now, approximately 25.5 million Americans that have served in our nation’s armed forces are eligible for veteran home loans. Veteran home loans are available to any former or present member of the armed forces who has met the requirements for time in service and discharge status (if discharged). Veteran home loans are also available to reservists and national guardsmen who have spent 6 years as a member of a reserve or guard unit, as well as the spouses of all eligible veterans who have died. The requirements for full-time service members are 90 days active duty service during wartime, or 181 continuous days of active duty service during peace time.
The guarantee afforded to the lender from the Department of Veterans Affairs is just one benefit of veteran home loans. Because of the guarantee offered by the VA, many of the lenders who provide the funds for veteran home loans are more willing to lend to a borrower who might otherwise not qualify for a conventional mortgage. The VA guarantees up to 25% of the loan value, not to exceed a total loan amount of $417,000 in most areas. In some higher-cost areas this limit is raised to meet the demand of the individual market. The guarantee is to replace conventional assurances a lender requires in the form of a down payment and is paid to the lenders in the event that the loan is defaulted on. Veterans who default on veteran home loans must repay the VA for the amount of the guarantee before being eligible to reuse their VA eligibility for future veteran home loans.
Commonly Asked Questions
One of the largest benefits of Veteran home loans is that closing on veteran home loans can be done with as little as $0 out of pocket for a down payment and closing costs. This is a great benefit to veterans who don’t have sufficient savings for a more traditional down payment. You can get veteran home loans to cover 100% of the purchase price of the home, provided that you are purchasing a home at or below the VA loan limit ($417,000 in most areas) and in many cases have the sellers cover all of the closing costs.
Yes, of course! In fact veteran home loans have options for refinance that most other types of loans do not. For example, you can utilize the streamline refinance or a “cash out” refinance with veteran home loans. Both of these options allow you to get into a lower rate and have many other benefits as well.
A streamline refinance enables you to lower the interest rate on your mortgage, and usually to lower your monthly payment. All streamline refinances are evaluated based on the net benefit to the borrower before being approved, so you will always know that if you’re approved for a streamline refinance, it will be beneficial to do so. As opposed to traditional refinances, a “streamline” option is much simpler and quicker (as implied by the name). Streamline refinances take most of the underwriting information from the previous loan rather than beginning anew as a traditional refinance would do.
A cash-out refinance are veteran home loans where you are able to receive cash at closing up to 90% of the value of the home. This is a great option for veterans looking to consolidate debt or make improvements to their home.
Veteran home loans can be either a fixed rate or a variable rate. The lenders that offer the veteran home loans programs often have many different loan programs available. Your lender can advise you on what would be most advantageous to you at the time you are applying for the loan, but you should make sure that the lender is clear on what type of rate you’re looking for and that the final documentation of the loan shows the type of rate you chose.
You must, of course, be an eligible veteran or spouse of a deceased veteran. To establish eligibility status you’ll need to obtain a COE (Certificate of Eligibility), which any VA-approved lender can help you acquire. Additionally, you’ll need to certify that you intend to occupy the property as your primary residence in order to get a VA-guaranteed loan. There are exceptions to the residency requirement, but they are few and far between.
To be eligible for veteran home loans the Department of Veterans Affairs does not have a minimum credit requirement. However, credit is an important consideration for the lenders that finance veteran home loans. The lenders that provide the funds for the mortgage use credit to help determine the likelihood of a default on the loan. The credit requirements imposed by the lenders on veteran home loans are generally more relaxed than those of a more traditional mortgage program.
“There’s no such thing as a free lunch,” as the saying goes. Veteran home loans do have associated costs involved. Some of these costs include origination charges that are charged by the lender or broker for the application and processing of the loan, and any points that you as a borrower may choose to pay in exchange for a lower interest rate. Other fees include the fees that your local government charges to record the loan as well as the funding fee charged by the VA for all veteran home loans. This funding fee varies depending on the type of transaction and the size of the down payment, if any.