There are ample resources already out there that helps potential VA borrowers understand the eligibility requirements, but here we’re going to be taking the information directly out of the VA Lender’s Handbook (VA Pamphlet 26-7) to give you the insider perspective on what your lender is going to be looking for as they work with you to establish eligibility. This will give you an insight into what questions your VA lender can and will answer for you and which questions you should seek answers for with the VA itself. This article will follow very closely the beginning of the 2nd chapter in the VA Lender’s Handbook, and all the information provided is taken from there.
First, how does the VA define eligibility? In the Handbook, they distinguish between ‘eligibility’ and ‘entitlement’. They also distinguish the difference between being eligible for a VA loan and being approved for one. The answer addresses one of the most common questions about VA loans; how someone can be eligible for a VA loan and still not be able to get one. Below is their definition:
Eligibility means the veteran meets the basic criteria of appropriate length and character of service to utilize the home loan benefit. Entitlement, which will be discussed later, is the amount a veteran may have available for a guaranty on a loan. An eligible veteran must still meet credit and income standards in order to qualify for a VA-guaranteed loan.
To sum up, simplify, elaborate, or otherwise clarify that definition, you can explain the main differences between the terms by explaining how they are measured; eligibility is measured by time spent in the service and nature of discharge, and is a simple “yes” or “no” value. Either you are eligible or you are not. Entitlement is measured in dollars ($) and can be anywhere between $417,000 and over $1 million, depending on where you live. If you are eligible for a VA loan, you are thus entitled to a certain amount. This is not money you receive, simply the maximum limit on the loan amount that the VA will guarantee to the lender on your behalf. Finally, being approved or “qualifying” for a VA loan is measured by similar standards as a conventional loan; credit report, income and employment, and debt-to-income ratio. Being eligible for a VA loan has zero bearing (other than being a prerequisite) on whether you will actually qualify for one.
The Handbook clearly outlines the Lender’s responsibility in regards to making sure the borrower is eligible for a VA loan. It states that even before processing and absolutely before closing on a VA loan, the lender needs to verify that the borrower is eligible. The only acceptable proof for a veteran’s eligibility is a Certificate of Eligibility or COE. Discharge papers or other DoD forms or VA forms will not be accepted; only the COE will. The COE can be provided to the lender by the borrower, and the lender is under no obligation to have it updated unless, “…the lender has reason to believe it is inaccurate.” Lenders are told that they are not to make judgement calls on who is eligible and who is not, and that they must have a COE on file for any person applying for a VA loan.
If the lender is obtaining the COE on behalf of the borrower or assisting the borrower in doing so, the Handbook provides clear instructions on how to obtain it online. Usually, the COE can be established in seconds, but in some special cases, additional supporting documentation is required to be submitted in order to verify eligibility. In this case, there will be a link to follow where an online eligibility application can be filled out and submitted. Borrowers can also apply for their COE on their own if they prefer. The only real advantage to doing it beforehand is that it saves time when you actually go to the lender. While there is a mail-in option to apply for the COE, it is strongly recommended by the VA that borrowers and especially lenders take advantage of the online system.