Prospective homebuyers who have also served in the U.S. military have a chance to purchase a home with a VA loan. This special type of mortgage offers veterans access to a federally-guaranteed home loan with no down payment.
The History of the VA Loan
The VA loan was first introduced in 1944 through the GI Bill of Rights, also known as the Servicemen’s Readjustment Act. Signed into law by President Franklin D. Roosevelt, it gave veterans the opportunity to provide affordable housing and assistance for their families.
Currently, VA loans are funded by the U.S. Office of Veterans Affairs and offered through private lenders like banks, savings & loans or mortgage companies.
How Does It Work?
Veterans who are interested in purchasing a home with a VA loan must first seek eligibility. The federal government will insure a maximum of 25 percent of the home loan amount, or up to $104,250. This means the maximum VA loan amount a veteran can obtain is $417,000.
The good news is that because the loans are federally guaranteed (the lender is protected against loss if the homeowner later fails to repay the loan), the veteran borrower is allowed to purchase a home without making a down payment. Also, borrowers have access to favorable financing terms (VA mortgage interest rates are often several percentage points lower than the national average).
The main requirement for taking out the loan is that the veteran must use it to purchase a private home. In other words, it must be use for personal occupancy.
Who is Eligible for a VA Loan?
Currently, there are more than 25.5 million veterans and service personnel eligible for VA home financing. To be eligible, a former service member must have:
- Served on active duty
- A discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime
- Served at least two years if enlisted and began service after Sept. 7, 1980 or was an officer and began service after Oct. 16, 1981
- Served at least six years if a part of the National Guard. Additional criteria apply in this circumstance
Surviving spouses are also eligible for a VA loan, but must prove that they are indeed the surviving spouse of a veteran who died in service or as a result of service.
VA Loan Financing Requirements
If you are interested in starting the mortgage loan process, you need the following to meet the eligibility requirements:
- Certificate of Eligibility and a DD214
- Social Security numbers
- Residence addresses for the past two years
- Names and address of employers over past two years
- Current gross monthly salary
- Checking and savings account information (names, addresses, balances, etc.)
- Current loan information (names, addresses, balances, etc.)
Also, you’ll need W2s for the past two years and current check stubs. If you’re self-employed, you need to provide personal tax returns for the past two years, as well as a current income statement.
Are Closing Costs Required?
While the down payment is covered with the VA loan, closing costs do have to be paid by the veteran. This usually includes paying a maximum of all “Itemized Fees and Charges” designated by the VA (including credit report, recording fees, hazard insurance and the VA funding fee), plus a 1-percent flat charge designated by the lender.
However, if the veteran structures the contract so that the loan amount covers the closing costs–usually by raising the loan amount around 3 to 5 percent–the seller could be willing to pay the closing costs and pre-paid expenses.
VA mortgage loans can be very beneficial to those who have served our country. Whether it a loan to finance a first home purchase or a VA home loan refinance (which offers benefits like no credit checks and low interest rates), there are definite perks to taking this route.
To learn more about eligibility or apply online, visit the U.S. Department of Veterans Affairs home loan page.
