Among mortgage lenders, VA loans are widely considered one of the most attractive loans available to veterans who qualify. The greatest benefit of a Veterans Association Loan, or a VA loan, is that there is no down payment. Eligible veterans can purchase a house and pay 0 percent down.
What is a VA loan?
A VA loan, confirms the Consumer Financial Protection Bureau, is offered through the Department of Veterans Affairs (VA). The VA loan was first created in 1944 to make it easier for military personnel to buy a house. Designed to help servicemembers, veterans, and their families, VA mortgage loans are structured by the VA and funded through a mortgage lender.
VA loans are well-known among most servicemembers and veterans because of their big no-down payment benefit. “Another awesome benefit of the VA loan over other alternative loan options is that it does not require the addition of private mortgage insurance,” Rhett M. Struve, a Minneapolis-St. Paul Metropolitan Area realtor and owner/operator of the real estate blog TwinCitiesSold.com, says. “This is primarily due to the fact that the Veterans Association gives private lenders a guarantee that the homeowner won’t default. If they do, the VA will work with the lender to circumnavigate the situation.”
The U.S. VA explains that a VA-guaranteed loan can be used by those who are eligible to buy a house, either pre-construction or existing, to be used as a primary residence. The VA loan also provides an additional option for homeowners to refinance an existing mortgage, with the same loan benefits.
Along with the no down payment and no mortgage insurance perks Struve describes, a VA-guaranteed loan will come with additional benefits like:
- Equal opportunity mortgage loan for all veterans who qualify.
- One-time VA funding fee often lumped into the total loan amount.
- Minimal “safe, sanitary, and sound” property requirements.
- Reusable.
- VA limits some closing costs paid by veterans.
- VA staff remains dedicated to helping veterans who get behind on their mortgage.
- Veterans on VA disability compensation don’t have to pay VA funding fee.
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How do veterans qualify for a VA loan?
The VA loan is a good benefit for veterans to take advantage of, John Cooney, veteran and owner of Green and Gold Financial Planning, LLC, an independent fee-only financial planning firm in Massachusetts, explains. Cooney is also currently in the process of buying a new house with his wife and is using the VA loan benefit.
To be eligible for the VA loan, Cooney says, a veteran must satisfy at least one of the following criteria:
- Serve 90 consecutive active days during wartime.
- Serve 181 active days during peacetime.
- Have more than 6 “good” years of National Guard or Reserve Time.
- Or, be a spouse of someone who died in the line of duty or as a result of a service-related disability.
Detailed eligibility requirements can be found here.
A veteran must still meet the basic requirements of any mortgage borrower to get a VA loan — have good credit and a satisfactory debt-to-income ratio, for example. “When applying for a VA loan, a veteran should work with a mortgage broker that has experience with VA loans. These loans do have some requirements not present in a conventional mortgage,” Cooney says.
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How to apply for a VA loan
Once you’ve found a lender with VA experience, the application process is fairly straightforward. Cooney explains:
- To begin the process, contact your local VA rep or create an account at ebenefits.va.gov to acquire your Certificate of Eligibility (COE).
- Be prepared to provide proof that you meet the eligibility criteria outlined above. “The most common form of proof is through submitting the Form DD-214. Once you submit your DD-214 or some other form of verification, you can receive your COE in less than a week.” Cooney says.
- Then, provide your COE to your lender as proof of your qualification for a VA loan. From there, Cooney says, the loan approval process is similar to what all applicants go through when seeking a home loan. (Running a credit check, income verification, and more.)
- In addition, the Veterans Administration requires an appraisal done on a property by a VA-approved appraiser. Cooney emphasizes that the loan applicant and the lender have no say in who does the appraisal. “It is selected by the VA on a rotational basis among a group of VA-approved appraisers,” he explains.
The VA appraisal process can take longer than the normal appraisal process for a loan. In Cooney’s case, he found it most helpful to notify his real estate agent, lender, and seller’s agent that he was financing his purchase through the VA loan so that everyone was aware of the potential for a longer closing process. “It’s also recommended that you institute a VA loan clause into any Purchase and Sale, an example of which the VA supplies here,” Cooney says.
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Your guide to VA loan fees: 6 charges a veteran could pay
Remember, the VA loan also comes with a VA Funding Fee. “Veterans who are attempting to purchase their first home will pay 2.15 percent of a home’s sales price. For any property purchases that follow, military members who plan on utilizing a VA loan for a second time are required to pay 3.3 percent of the sales price,” Struve says. But if you are a veteran who receives a service-connected disability, this funding cost can be waived.
To waive the fee, Cooney recommends doing two things. First, make sure your COE specifically mentions your disability. And second, provide your lender with a copy of a verification from the VA of your disability finding.
Therefore, a veteran taking out a VA loan may pay for:
- Appraisal Compliance Inspection.
- Authorized local and state fees.
- Survey.
- Taxes and insurance on the escrow account.
- Title examination and insurance.
- VA appraisal and funding fees.
*Fees are only an example and may be subject to change. Please contact your loan officer for more information.
As mentioned above, the VA does set limits on how much a veteran may be required to pay. A veteran taking out a VA loan cannot be charged for:
- Loan application and processing fees.
- Loan broker, finder, or other third-party fees.
- Negotiation fees, debt management service fees, or required property repairs on a short sale.
- Notary fees.
- Tax service fees.
- Trustee’s fees.
*Fees are only an example and may be subject to change. Please contact your loan officer for more information.
For many service members and veterans, the VA home loan remains an untapped resource. More than 21 million people are eligible in the U.S. today, yet only 6 percent of these veterans have bought a house using the VA loan in the past five years. Many veterans aren’t aware that these benefits never expire. Whether you served 15 or 50 years ago, you could still obtain the VA loan benefits if you’re eligible.
Our loan officers are always available to help you with your VA loan questions — and to help get you qualified. Our commitment to helping you find the right loan program to meet your needs is but a small way to thank you for your commitment to our country.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources deemed reliable but not guaranteed.