Veterans Capitalize On Unique VA Loan Features
Home buyers often ask which type of loan is best for them.
FHA loans offer low downpayments, and the allows buyers to qualify based on income from all members of the household.
But for those who have served in the military, the best loan option is usually the VA home loan.
It is the only home loan that offers the unique combination of zero downpayment, no mortgage insurance, and rates that run more than a quarter percent lower than conventional rates.
Because the VA loan is unique, it incorporates features not found in any other loan type. These features are sometimes unfamiliar to home buyers, and that’s okay. Buyers don’t need to be experts on VA loans to enjoy the benefits.
But for some, understanding lesser-known facts about eligibility, funding fees, and va home loan entitlement further prepares them for the home buying process.
What Is A VA Home Loan?
Enacted by Congress in 1944, the VA loan was designed to offer long-term home financing to eligible American veterans and their surviving spouses.
VA loans have continued to increase in popularity, with more than 20 million VA home loans being issued during the program’s history.
Unlike most VA benefits, the VA loan is not provided by the federal government. Almost no interaction with the VA is required on the veteran’s part.
Rather, private lenders oversee the loan process and receive government backing on loans issued under the VA loan banner. The government guarantee allows lenders to offer loans at better rates and terms than they would be able to otherwise.
Veteran home buyers benefit, and enjoy the best of both worlds: the use of their VA benefit, and a customer-service oriented experience provided by a private company.
Understanding three VA loan features further streamlines the experience for buyers.
1. The Eligibility Check Happens In Minutes
Every home buyer, VA or otherwise, submits an application to qualify for a home loan.
Qualification is simply the lender’s process of looking at income, debts, and credit to make a judgment call on the applicant’s ability to repay the mortgage.
VA home buyers go through an additional step prior to the qualification process: checking VA loan eligibility.
This process is simpler than qualification and often happens in minutes. The lender requests a document called the Certificate Of Eligibility (COE) directly from VA and usually receives it immediately.
The VA determines eligibility status based on the veteran’s military service.
In general, if you meet one of the following criteria, you are likely to be eligible for a VA loan if:
- You served 181 days on active duty during peacetime
- You served 90 days on active duty during wartime
- You served six years in the Reserves or National Guard
- Your spouse died in the line of duty or from a service-connected disability
Even veterans who do not believe they meet these service requirements should check their eligibility status. There is no cost from the lender to order your COE.
It’s worth the time to access the benefits to which you could be entitled.
2. VA Funding Fees Are Not Paid In Cash
Lenders offer VA loans at discounted rates and fees because of strong backing by the VA.
Surprisingly, the benefit is not subsidized by the U.S. taxpayer. Rather, the program is self-sustaining.
It is financed in part by fees that VA buyers pay when they receive their loan. These are known as VA funding fees.
Most VA buyers pay 2.3 percent of the home loan amount, or $2,300 for every $100,000 borrowed. This is the fee associated with regular military veterans who pay nothing down.
However, the fee can be higher or lower depending on the veteran’s down payment, and whether it’s the first time using a VA loan. Funding fees range from 1.4 to 3.6 percent.
Not all veterans pay a funding fee. Those receiving compensation due to a service-related disability are exempt.
Those who do pay it need not come up with extra cash up front. Veterans are not required to pay funding fees out-of-pocket. The funding fee can be financed as part of the loan amount.
The fee is small considering the massive savings the VA loan provides, and ensures the program will remain viable for future veteran home buyers.
3. VA Loan Entitlement Can Be Restored
Veterans are issued an entitlement dollar amount when they fulfill required service.
The dollar amount that indicates full entitlement is $36,000. This number is not a lending limit itself, but represents the veteran’s eligibility to buy a home with zero down.
Veterans who have never used their VA home loan benefit have access to their full entitlement. Those who have purchased a home before can restore their entitlement in full and purchase another home.
Veterans who sell the first home and pay off the VA loan in full will have their entitlement restored.
But selling the home is not always required. The veteran can refinance the home into a non-VA loan and receive a one-time restoration of entitlement. They can then purchase one additional home that they plan to live in using their VA home loan benefit.
What Are Today’s Rates?
VA home loans provide less stringent underwriting requirements and lower interest rates to eligible applicants.