Most military members know about their access to the VA Loan, but few know the details of how to get it and how to use it. The VA loan is a substantial benefit of military service, and it offers affordable homeownership possibilities throughout the service member’s lifetime.
Read on for more information that will introduce you to the most requested information about a VA Loan.
What is a VA loan?
A VA Loan is a mortgage backed by the federal government. A portion of the principal is guaranteed (insured) by the Department of Veterans Affairs. To encourage a bank, credit union, or lending institution to finance a military homebuyer, the Department of Veterans Affairs offers this insurance under specific guidelines. This guarantee makes it easier for banks to feel comfortable lending you the money you need.
Who is eligible for a VA loan?
Because everyone’s military career is different, the Department of U.S. Veteran’s Affairs is the best place to verify your eligibility, but you can get a feel for the requirements here:
- 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.
Other common standards apply. For example, you must meet credit score thresholds, earn a sufficient income, plan to purchase the property for personal occupancy, and submit Request Form 26-1880 for a Certificate of Eligibility (COE). Then, the wheels are set in motion to apply for a VA Loan.
What paperwork is needed when applying for a VA loan?
There’s some paperwork to track down, but it’s all part of the home buying process. Start early to find each document; it’ll probably take longer than you think.
Here's what you'll need:
- Valid identification
- Certificate of Eligibility (COE)
- 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?
The down payment requirement sets the VA loan apart from the rest. You don’t need to have a sizeable down payment. In fact, the zero down payment means you don't need one at all. Additionally, the terms of the VA loan are often more favorable than other home loans because there's no private mortgage insurance (PMI) thrown on top. Remember, the government is guaranteeing a portion of the loan. Also, a VA loan often offers a more competitive interest rate than a conventional loan.If you want to take a deeper dive into the differences between the loans, check out Which One is Right for You? Comparing Conventional and VA Home Loans for Military Homebuyers.
How many times can a VA loan be used?
When a VA loan is in place, a portion of the entitlement of that loan applies to the purchase. However, you can use it again. Here's how.
- 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 house.
Your COE and the location of the property help clarify just how far the entitlement of the loan will potentially stretch.
Photo by Andrii Chagovets from Getty Images via Canva.com
What can’t you buy with your VA loan?
You’re probably wondering how to maximize the buying power of your VA loan. That’s innovative thinking, but sorry, you can’t use your loan to buy a vacation home.
You also can't buy:
- Foreign property. The house must be in the U.S. or its territories: Puerto Rico, Guam, Virgin Islands, American Samoa, and the Northern Mariana Islands.
- Farmland without a primary residence. You must live there full-time.
- Land to build on in the future. Construction has to start ASAP.
- An investment property or a second house. The VA loan is designed to set military members up in a primary/permanent residence.
VA Loans are a fantastic way for military members and veterans to buy property. Just be sure to work with a seasoned real estate team that includes an agent and lender with experience navigating the VA Loan.
For further home buying and VA home loan information, MilitaryByOwner offers a series of free resources, including the below guide, What to Know About Your Finances Before Buying a Home.
