Disclaimer: Beginning January 1, 2020, the VA funding fee will be changing to a range of 1.4% – 3.6% based on factors like your down payment or equity amount, your service status and whether this is a first or subsequent use of a VA loan.
A VA loan is one of the most widely used benefits available to veterans and service members. However, just because it’s popular doesn’t mean many service members understand how this exclusive benefit works. I’ve assembled some of the most frequently asked questions about VA loans to help you understand your benefits.
What is the advantage of a VA loan?
The biggest advantage is most likely the ability for veterans and service members to purchase a home with no money down. Additionally, there is never any monthly private mortgage insurance (PMI). VA loans are easier to qualify for than conventional loans and interest rates are generally lower as well. If you ever want to convert your home equity into cash, you can borrow up to the full appraised value of your home. This could make it easier for you to accomplish your financial, homeownership and personal goals. A VA loan is a great benefit to have.
Do disability benefits affect my eligibility to receive a VA loan?
If you are a disabled veteran, there is no reason why you should not be eligible for a VA loan. In fact, if you are disabled, you are entitled to even more benefits. Veterans receiving benefits for service-connected disabilities, spouses of veterans who died in service or from service-related disabilities, and veterans entitled to receive service-connected disability compensation are not required to pay the VA funding fee. Also exempt from the funding fee are eligible surviving spouses and active-duty recipients of the Purple Heart.
Can I have a co-borrower who is not a veteran on my loan?
Yes. Sometimes it helps to use both your’s and your co-borrower’s credit and income to help you qualify for the maximum required loan amount. But keep in mind, if your co-borrower isn’t a spouse or another veteran, the guaranty only applies to the veteran’s stake – roughly half – of the loan. Which means the VA guaranty will only be around 12.5% of the loan instead of the usual 25%.
What happens to my benefit if I’ve already had a VA loan before?
This is a question of entitlement. Entitlement can seem like a tricky situation at first glance, but it’s really not that complicated. You can have your entitlement restored one time only in order to purchase another home with your VA loan. In this case, you must have paid off the loan yet still own the property and want to use your entitlement to purchase a second home.
However, if you’ve paid off the loan and the property is no longer owned, you can have your entitlement restored as many times as you want. You can reuse your VA loan eligibility for every home purchase.
I’ve written more about understanding bonus entitlement in another article, where, I break it out into much greater detail.
What documents do I need to qualify for a VA loan?
Veterans and service members are required to obtain a Certificate of Eligibility (COE). If you don’t have it, you’ll need to apply for one using the VA Form 26-1880 (which will require a copy of your DD-214). Along with the COE, you will need all of the typical items required to document your credit, savings and employment information.
Does my entitlement expire?
Your entitlement does not expire. If you are on active duty, your entitlement is good to use immediately. If you’re discharged or released from active duty, a new determination of eligibility must be made based on your length of service and your type of discharge.
Who is eligible to receive VA loan benefits?
You may be eligible for a VA loan if you meet one or more of the following conditions:
- You have served 90 consecutive days of active service during wartime
- You have served 181 days of active service during peacetime
- You have more than 6 years of service in the National Guard or Reserves or had at least 90 days of service under Title 32, with at least 30 being consecutive
- You are the spouse of a service member who has died in the line of duty or as a result of a service-connected disability
Can I use my VA loan for a second home?
You can most certainly use your VA loan benefits to buy a second home. But that home must be considered your primary residence in order to qualify for your loan. It gets a bit sticky here, between eligibility, entitlement and occupancy requirements, but ultimately if you are living in your second home or vacation house for more than six months of the year, you’re in the clear.
Can I use a VA loan to buy a rental property?
No. But you can use a VA loan to refinance an existing rental home you once occupied as a primary home. The VA’s Interest Rate Reduction Refinance Loan (IRRRL), also known as the VA Streamline Refinance, can be used to refinance an existing VA loan for a home where you currently live or where you used to live, but no longer do.
How do you get your eligibility back after a divorce if your spouse was awarded the home?
When the property is awarded to the spouse as a result of the divorce, entitlement cannot be restored unless the spouse refinances the property and/or pays off the VA loan in full, or if the spouse is a veteran, they substitute their entitlement for yours.
Can I use my Basic Allowance for Housing (BAH) to qualify for a VA loan?
Yes! Your BAH acts as verifiable and reliable income that helps reduce your debt-to-income ratio. Keeping a low debt-to-income ratio is a key factor that’s used when underwriters determine your qualifications for a mortgage.
What is a funding fee and why do I have to pay it?
A funding fee is the cost associated with obtaining a VA loan. It helps to ensure that the loan continues to require no down payment and have no monthly mortgage insurance. There are some cases in which the VA considers a veteran to be exempt from the funding fee: If you receive or are eligible to receive disability benefits, or if you’re a surviving spouse of a veteran who died in service or from a service-connected disability.
If you’ve had an experience using the VA loan program, please leave your comments below. We would love to see your feedback.
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