Understand Your VA Home Loan Benefit

Thu, Aug 31, 2017 @ 08:08 AM Mary Ann Eckberg Home Financing

The military moving schedule has brought a new family to our street. Happy to be homeowners, our neighbors stated, “Thanks to a VA Loan, we were able to buy this home.”

The willingness of our new friends to dive into the real estate pool prompted me to share details of this benefit for veteran homebuyers. Following are some commonly asked questions, along with answers!

Understand your VA Home Loan benefit.

What is a VA Loan?

A VA Loan is a mortgage backed by the government with a portion of the principal guaranteed (insured) by the Department of Veterans Affairs. In an effort to encourage a bank, credit union, or lending institution to finance a military homebuyer, the Department of Veterans Affairs offers this partial pledge, as long as certain guidelines are met.

Who is eligible for a VA Loan?

Those who can apply for a VA Loan:

  • Active Duty members with a statement of service.
  • Veterans with the Certificate of Release or Discharge from Active Duty Form DD214.
  • Spouses of military members who’ve died on Active Duty or as a result of a service-connected disability.

If a house hunter has satisfactory credit, sufficient income, plans to purchase a property for personal occupancy, and submits Request Form 26-1880 for a Certificate of Eligibility (COE), then the wheels can be set in motion to apply for a VA Loan.

What paperwork is needed when applying for a VA Loan?

  • Valid identification
  • Current contact information
  • Previous addresses
  • Employment history
  • Pay stubs or earnings statements
  • Tax forms
  • Other items or documents as requested in the loan application

How does a VA Loan differ from other home loans?

If a home shopper doesn’t have a lot of money to put towards a down payment, a VA Loan can still help the family realize the dream of owning their own home. For instance, our post Which One is Right for You? Comparing Conventional and VA Home Loans for Military Homebuyers shares this point,

With lower limits on loan amounts, a VA Loan has no requirement for a down payment.

Also, the terms of the VA Loan are often more favorable than other home loans because there is no need to tack on private mortgage insurance with a VA Loan and there is often a more competitive interest rate than a conventional loan.

These factors are due to the lender assuming less risk with a VA Loan thanks to the portion of government backing.

How many times can a VA loan be used?

When a VA loan is in place, a portion of the entitlement of that loan to purchase a home has now been used. However, as How to Reuse Your VA Home Loan Benefits explains, an eligible borrower can 

  • Keep the existing home and buy again with a second tier of entitlement, often available with the VA Loan.
  • Sell the existing home, pay off the mortgage, and apply to restore VA Loan entitlement to purchase the next home.

The borrower’s Certificate of Eligibility and the location of the property will help clarify just how far the entitlement of the loan will potentially stretch.

It's clear that a VA Loan is a notable, lifelong benefit for those who’ve served and also a topic worth learning more about. A recent article from the Mortgage Bankers Association detailed,

Increased education about the VA Loan Guaranty Program will help more lenders, real estate agents, and Veterans become knowledgeable about the program and increase the number of Veterans taking advantage of the benefit.

For further home buying and VA Home Loan information, MilitaryByOwner offers a series of free ebooks, including What to Know About Your Finances Before Buying a Home

What to Know About Finances Before Buying a Home