Most VA Loan Applicants Are Not First-Time Buyers
If you thought VA loans are available only for first-time home buyers, you’re not alone.
Many active military personnel and veterans assume this zero-down program is a one-time “use it and lose it” benefit.
Fortunately, that’s not the case.
In fact, 58 percent of VA loan recipients in 2015 were previous home buyers (the most recent data available), according to the U.S. Department of Veterans Affairs (VA), up from 51 percent in 2011.
That means, historically, the majority of VA loan applicants are not buying their first home.
VA mortgage rates today have made these loans the first choice for veterans and service persons who are relocating, downsizing, or getting into a bigger home. VA rates run about a quarter of one percent lower than conventional loan rates, according to a recent study by loan software company Ellie Mae.
If you want to purchase a new property, a VA mortgage can be the right choice. It’s not difficult, and millions of home buyers have already done it.Click to see your VA loan eligibility (Dec 14th, 2018)
Simple VA Loan Eligibility Explainer
The first step in getting another VA mortgage loan is learning about VA loan eligibility.
Eligible borrowers receive a VA loan entitlement, typically $36,000. This is the amount by which the VA insures your loan.
The VA does not make the downpayment. Rather, it stands as a backstop so that lenders can issue loans at better terms, as if the applicant were actually making a downpayment.
Financial institutions will loan four times the entitlement amount, so you can buy a house costing up to $144,000 with no money down.
Nationwide, the standard VA loan limit is $453,100 and much higher in some areas. One hundred percent financing is available for those higher loans within local limits, too.
But if you go lower than $144,000, a portion of your entitlement will be left over. This sometimes makes it possible to simultaneously rent your current home and purchase another one. Active military personnel often do this after buying a house in one location and receiving PCS orders for another area.
You can also use the remaining entitlement to buy income-generating property of up to four units, as long as you occupy one of them.
Buying a second home or vacation home with remaining entitlement is not permitted. You or your spouse must certify that you will occupy the property as your primary home.
Now here’s where it gets interesting.
If you use all of your entitlement to purchase a property, you don’t automatically get a second (or a third or fourth) entitlement. But, the moment you dispose of the property or pay off the mortgage, you can apply to have the full entitlement restored.Click to see your VA loan eligibility (Dec 14th, 2018)
VA Loan Entitlement Restoration
You can use your VA loan benefit more than once. Much more than once, in fact.
Veterans and active duty personnel, as well as members of the Selected Reserves are eligible for another loan, at the same low VA loan rates enjoyed by first-time home buyers.
The following guidelines apply depending on whether you are keeping or selling your current home.
Restoration when you keep your current home
You can pay off the VA mortgage either with cash, or with a non-VA loan, and keep the home. In this case, you can have your entitlement restored to buy another property while continuing to own the first one. You can apply to have the entitlement restored one time only.
Restoration when you sell your current home
If you’ve paid off the previous mortgage and you no longer own that property, you can have your entitlement restored as many times as you want. In other words, you can keep changing homes, as long as you are selling and paying of the former VA loans in full each time.
Again, getting your entitlement restored doesn’t happen automatically. You’ll need to complete VA Form 26-1880. Check with the nearest VA office to obtain this form and to learn when, how and what you can buy using any remaining entitlement.
When you have owned multiple properties
If you currently own property that was initially financed with a VA mortgage – even if that loan was paid off in a sale or refinance – it can occasionally cause a glitch when you apply for a new VA mortgage.
The VA says in its guidance to lenders to provide evidence that the prior loan has been paid in full with the application. Dig up those old documents (or at least know where they are) before contacting a VA lender.
Often, veterans sell a home financed with a VA loan, and simultaneously close on a new purchase with another VA loan.
The VA says you won’t be able to restore your entitlement the “normal” way.
The lender can, however, obtain a COE that indicates your entitlement is currently tied up with an active VA loan. You can use this to apply for the new mortgage.
You would then close the sale of the old property and give the closing statement (HUD-1) to your new VA lender. It will submit the document to the VA online, restore your eligibility and conclude the purchase of the new property.
A Word About The Funding Fee
When you reuse your entitlement, you might pay a higher funding fee. It depends on your military status and the size of your down payment.
For example, if you’re regular military and put nothing down, your first VA loan has a funding fee of 2.15 percent. You can usually wrap this fee into your VA mortgage if you don’t wish to pay it out-of-pocket.
Your second VA mortgage, if you put nothing down, will have a 3.3 percent funding fee. However, you can save money by putting at least five percent down, especially on subsequent use loans.
The following shows the VA funding fees according to downpayment and military status.
- Five percent down: 1.5 percent funding fee for first-time and subsequent use
- Ten percent down: 1.25 percent funding fee for first-time and subsequent use
National Guard and Reserves
- Five percent down: 1.75 percent funding fee for first-time and subsequent use
- Ten percent down: 1.5 percent funding fee for first-time and subsequent use
Considering the 3.3 percent funding fee for zero down, making a small downpayment can pay off.Click to see your VA loan eligibility (Dec 14th, 2018)
There’s No Expiration Date For Your Entitlement
In general, the above entitlement guidelines apply to all active-duty personnel, but once you’re discharged or released from active duty, a new determination of your eligibility must be made based on the type of discharge you received and your length of service.
This does not mean, however, that veterans’ home loan entitlements expire. They don’t.
Veteran or active duty, everyone is required to obtain a Certificate of Eligibility (COE) before applying for a VA loan. VA Form 26-1880 is used for this. Lenders can request your COE, and often receive it within minutes.
If you’re a veteran, you’ll also need to fill out Form DD-214, which is the Certificate of Release or Discharge from Active Duty. This shows the character of your service.
In addition to this information, you’ll provide some documentation regarding your credit score, financial status, and employment history.
Many eligible home buyers don’t know about VA loan benefits, or they mistakenly think that conventional loans are superior. In fact, VA loans usually carry lower interest rates than conventional mortgages, don’t require private mortgage insurance, and don’t include early repayment penalties, among their other advantages.
Get all the facts before committing to a particular mortgage loan, but for most eligible service members and veterans, the VA home loan will pencil out to be the fastest and cheapest way to own a home.
What Are Today’s VA Loan Rates?
According to recent data by mortgage agency Freddie Mac, conventional loan rates have hit the mid 3s. Another report showed that VA loan rates are around 0.25% below conventional rates.
Get instant access to your VA rate quote now. All quotes come with an eligibility check and access to your live credit scores.Click to see your VA loan eligibility (Dec 14th, 2018)