The VA (Veteran Affairs) Home Loan program was designed to help veterans finance the purchase of a home with favorable loan terms and at a rate of interest that is competitive with the rate charged on other types of mortgage loans. For a VA housing loan, a veteran is defined as a member of the Selected Reserve, active-duty service personnel, and certain categories of spouses established by the Servicemen Readjustment Act or the GI Bill of Rights. The Bill of Rights was enacted under President Franklin D. Roosevelt in 1944. The objective of the legislation was to help veterans achieve a life of security and comfort after serving their country.
Since the law was passed after World War II, many soldiers and other military personnel have benefited from it. Its timeliness provided the much-needed hope that these people needed after fighting the war. It expressed the country’s appreciation of their valor and efforts to restore peace. The housing and financial assistance these heroes received allowed them to rebuild their lives.
What are the Benefits of a VA Loan?
These loans are often made without any down payment at all, and frequently offer lower interest rates than ordinarily available with other kinds of loans. The veteran is informed of the estimated property value through an appraisal and there is a limitation on closing costs. Lastly, they can opt for longer repayment terms and they have the right to prepay without penalty.
Eligible VA Loan Purchases
A veteran may use a VA loan to finance the following:
- To buy a home, including a townhouse or condominium unit in a VA-approved project.
- To build a home.
- To repair, alter, or improve a home.
- To simultaneously purchase and improve a home.
- To improve a home through the installment of a solar heating and/or cooling system or other energy-efficient improvements.
- To refinance an existing home loan.
- To refinance an existing VA loan to reduce the interest rate and add energy efficiency improvements.
- To buy a manufactured (mobile) home and/or lot.
- To buy and improve a lot on which to place a manufactured home which you already own and occupy.
- To refinance a manufactured home loan in order to acquire a lot.
VA Loan Process
- Apply for a Certificate of Eligibility. A veteran who doesn’t have a certificate can obtain one easily by making an application on VA Form 26-1880, Request for Determination of Eligibility and Available Loan Guaranty Entitlement, to the local VA office.
- Decide on a home the buyer wants to buy and sign a purchase agreement.
- Order an appraisal from VA. (Usually, this is done by the lender.) Most VA regional offices offer a speed-up telephone appraisal system. Call the local VA office for details.
- Apply to a mortgage lender for the loan.
- While the appraisal is being done, the lender can be gathering credit and income information. If the lender is authorized by VA to do automatic processing, upon receipt of a VA-approved appraisal, the loan can be approved and closed without waiting for VA’s review of the credit application. For loans that must first be approved by VA, the lender will send the application to the local VA office, which will notify the lender of its decision.
- Close the loan and the buyer moves in.
Service Requirements for VA Loans
A person is eligible for VA financing if military service falls within any of the following categories:
- Wartime Service — Must have served at least 90 days on active duty and been discharged or released under other than dishonorable conditions.
- Peacetime Service — If service in the military fell between periods of wartime and one must have served at least 181 days of continuous active duty.
- Active Duty Service — If you are now on active duty, you are eligible after having served on continuous active status for at least 90 days.
- There is a two-year military service requirement for enlisted veterans who enlisted and served in the military after September 7, 1980. Officers must have started their service after October 16, 1981.
- For national guards and selected reserves, the required period to have been in service is six years. There are, however, other criteria for pre-qualification that must be met.
- In case the military person eligible for the VA loan is dead, the surviving spouse (provided he or she must not have remarried) can avail of the loan benefits upon compliance with the other requirements.
Limitations on VA Loan Benefits
If you are qualified under the VA loan program, you can be assured of a loan amounting to 25 percent of the total value of your home so all you need to secure financing for is the balance of the total value. If you need to borrow for the mandatory funding fee, you will have to apply for it separately as it is not included in the automatic eligibility provisions under the program.
The Veteran’s Benefit Improvement Act of 2008 passed on October 10, 2008, allows veterans to purchase a home without any down payment in certain pre-approved home loan counties as stipulated by the Federal agency. The new law was signed by former President George W. Bush and it increased the maximum VA loan amount to nearly $1 million.
It is best to consult with a VA loan agency if you want to confirm your pre-qualifications under the VA loan program. These VA loan agencies are knowledgeable on the various cut-off dates that affect the required minimum periods of service. They can establish your eligibility and help you improve your chances to receive VA loan benefits.
For more information on VA Loans, go to the government website.