The VA home loan features favorable terms available to qualifying veterans of the U.S. Armed Services through the U.S. Department of Veteran Affairs. While these loans are serviced by banks and mortgage lenders, they are partially guaranteed by the VA against loss with a high limit set on the amount that can be borrowed. Moreover, the loan benefit can be reused for multiple loans, so long as each loan is paid in full.
This benefit extends to service members with varying lengths of service, their spouses, U.S. military cadets, certain reservists, members of the National Guard, and U.S. citizens who fought in the armed services of countries allied with the U.S. during WWII.
The Benefits of VA Home Loans
There are several benefits of a VA home loan including no down payment, no mortgage insurance, and the loan can be assumed with the same terms of entitlement by another qualified borrower. Qualified veterans may not have to meet a minimum credit requirement, but the VA requires that the financial institution servicing the loan review the entire loan profile of the borrower.
Home loans through the VA can be used to purchase a variety of dwellings, including houses, condominiums, manufactured homes, units within a VA-approved project, or a new home built from the ground up. In addition, VA-backed loans can be used to refinance an existing loan or to renovate an existing structure.
Terms Of Eligibility
Veterans wishing to take out a home loan must provide a Certificate of Eligibility (COE). This document states the borrowers’ personal and financial information as well as their service record. Veterans who received a dishonorable discharge do not qualify for the loan benefit. While there is a high limit set limit on the amount that can be borrowed, they must provide proof of a source of income sufficient enough to meet the repayment schedule.
Other Qualified Borrowers
The VA home loan is not limited to only servicemembers. In some circumstances, the spouses of servicemembers may also qualify for a home loan if certain criteria are met with.
- If the borrower is a married or an unremarried spouse of a service member killed in action or by a service-connected disability.
- If the borrower is a spouse of a service member missing in action or prisoner of war.
- If the borrower is a surviving spouse who receives Dependency and Indemnity Compensation (DIC) benefits where the veteran’s death was not service related.
Loan Terms And Restrictions
While qualified borrowers can apply for loans of larger sums, the VA has area-specific lending limits. Veterans can borrow up to $484,350 throughout most of the country; however, the maximum amount varies depending on the county where the loan is being serviced. The chart below represents potential loan amounts based on the range of home values across the United States.
Current interest rates for a VA 30-year loan is 3.37% with an APR of 3.43%. VA home loans require the borrower to pay a funding fee based on the percentage of the loan amount and varies depending on the type of loan, as well as the military category of the applicant.
The funding fee is currently set at 2.15% for first time borrowers and 3.3% for each subsequent use of the benefit when the borrower is not providing a down payment. If the borrower makes a down payment of at least 5%, then the funding fee will drop to 1.5%. If the borrower makes a down payment of 10% or more, then the funding fee becomes 1.25%.
The same adjustments apply to each subsequent use of the entitlement. If the borrower is purchasing a manufactured home, then the funding fee is 1% of the loan amount regardless if it is a first-time or subsequent loan.
In the case that the loan becomes delinquent, the VA offers staff assistance to help borrowers avoid foreclosure, including a special forbearance or modification of the loan.
The VA home loan entitlement has been in place since 1944, helping veterans and their families obtain loans to purchase homes. VA home loans are guaranteed by the U.S. Government, making it possible for a qualified borrower to obtain a home loan without a down payment and with less stringent requirements regarding an applicant’s credit history. The loan can be used to purchase dwellings of different styles or to renovate an existing structure with a low interest rates.