As homebuyers approach the mortgage process, the options can become an alphabet soup of industry acronyms and terms: fixed-rate, ARM, 30-year, jumbo, FHA, Fannie Mae, USDA, and the list goes on and on. Each loan product has its unique benefits and qualifications, and some apply to certain individuals but not others. For some individuals planning to purchase a home and who have ever served in the country's armed forces, a loan from the Veterans Administration may be a valid option.
Who Qualifies for a VA Loan?
The Veteran Affairs home loan originated as part of the GI Bill of Rights, passed in 1944 and signed into law by Franklin D. Roosevelt. The intention of the law was to provide a series of benefits to returning service members, including education and home loan benefits. Today the VA loan benefit is available for military service members who meet the following criteria:
- Served on active duty with a discharge other than dishonorable.
- Have a minimum of 90 days of wartime service or a minimum of 181 days of peacetime service served continuously.
- If enlisted in service after September 7, 1980 or an officer enlisted after October 16, 1981, the service member must have completed two years of service.
- National Guard members are eligible after six years of service.
- Homes must be purchased for the personal occupancy of the service member; they may not be purchased for investment, business, or rental purposes.
In some cases, the surviving spouses of the military service member may meet VA loan requirements, but the dependent or non-dependent children are not. Borrowers are also subject to credit and income requirements to be eligible for a loan.
Why Choose a VA Loan?
For those eligible, why should a homebuyer choose a VA home loan over the other mortgage products that are widely available? The GI Bill of Rights is credited with spurring economic growth after World War II and today, more than 25 million men and women are eligible. While the Veterans Administration doesn't make loans directly to borrowers, the Administration sets guidelines for lenders who participate in the program and guarantee a portion of each loan against default. For borrowers, the advantages include:
- In most cases, borrowers are not required to have a down payment on the home purchase.
- Borrowers will be free from monthly mortgage insurance payments that protect the lender against default, since a portion of the loan is guaranteed by the VA.
- Lower closing costs than comparable loans.
- Lower average interest rates than other loan products.
Just as with other loan products, the homebuyer is responsible for ensuring that the home purchased is sound in structure, a good investment, and free from major defects. The VA is not responsible for the loan, not the condition of the property or its potential appreciation or depreciation.
What Options are there for VA Loan Eligible Home Buyers?
When using a VA loan to purchase a house, there are different options for military service members and veterans to utilize depending on their eligibility. Depending on disability, current homeownership, and other variables, homeowners may be qualified for one or several of the following VA loan options:
- Veteran Affairs Purchase Loans: A purchase loan is a loan that helps military buyers get into a home without a down payment or private mortgage insurance. It also allows homeowners to qualify with lower credit scores and reduced interest rates.
- Interest Rate Reduction Refinance Loan (IRRRL) or Streamline Refinance Loans (SRL): The IRRRL or SRL are loan options available to current military service members and veterans to refinance existing VA loan mortgages for a lower interest rate.
- Native American Direct Loan (NADL): These loans are intended for Native American veterans who intend to purchase or build a home on Native American Trust land.
- Adapted Housing Grant: This grant aids veterans with permanent disabilities to either build a new home, refurbish an existing home, or purchase a home that offers better accommodations and accessibility for them.
These options, and others, are available to all military service members and veterans who meet the requirements.
Eligible for a VA Loan: Where Do You Start?
If you believe you meet the requirements for Veteran Affairs loan eligibility, let your real estate agent know right away. The process of obtaining a VA loan requires some steps that are outside of the normal mortgage process. Some can be completed even before you settle on a home to purchase such as obtaining a Certificate of Eligibility (COE) from the VA directly. You can begin the process online at the US Department of Veterans Affairs. From there, an eligible veteran can work with a real estate agent to find a participating lender and begin the mortgage process.
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