Regarding VA Loans whereby the Veterans’ Administration guarantees a portion of the mortgage.
These loans are made available to qualified eligible Veterans by banks, mortgage brokers and direct lenders. The reason for the VA guarantee is to protect the lender against a loss in case the borrower does not make the payments thus defaulting on the loan. This VA guarantee actually replaces the security a lender would normally receive; the lender’s security being a down payment on the property.
With the VA guarantee, an eligible Veteran home buyer would be able to obtain favorable VA mortgage financing. They will also receive an interest rate similar to a conventional mortgage that requires a down payment.
VA Home Loans Eligibility
Active Duty Personnel are eligible after having served on continuous active status for at least 90 days.
Prior Service Personnel eligibility is depends upon whether the service occurred during Wartime or Peacetime.
Wartime Service personnel must have served at least 90 days of active duty and have been honorably discharged or released. On the other hand, if service was less than 90 days and discharge was because of a service connected disability they may still be eligible.
Peacetime Service personnel must have served at least 181 days of continuous active duty and been discharged or released for any reason other than dishonorable conditions. If service was less than 181 days, they may be eligible if discharged because of a service connected disability.
Note: Contact a VA Loan Specialist to determine whether 181 service days occurred during peacetime periods.
Two Year Requirement Period: If the Veteran’s period of service was between September 7, 1980 (or October 16, 1981 for officers) and August 1, 1990, the Veteran must have completed 24 months of continuous active duty or the full period (at least 181 days) for which the Veteran was called or ordered to active duty; and he must have been discharged or released for any reason other than dishonorable conditions.
If they are not otherwise eligible, members of the Selected Reserve are eligible if they have completed at least 6 years in the Reserves or National Guard, or been discharged because of a service connected disability, and one of the following:
- Have been an honorable discharge
- Have been placed on the retired list
- Have been transferred to an element of the Ready Reserve
- Continue to serve in the Selected Reserve
Other Types of Eligibility
Certain US Citizens, surviving spouses, personnel discharged for service connected disability, medical or mental conditions or reduction in force may be eligible.
Note: Please contact a VA Loan Specialist to help determine eligibility.
VA Home Loan Acceptable Use
VA Mortgages may be used to purchase homes, town-homes and condominiums (must be a VA approved condo project), including new homes that are to be built.
Veteran mortgages are intended for personal home purchases only and are not eligible to be used on rental or investment properties. The Veteran borrower must certify that they or their immediate family intend to personally occupy the home within 60 days of the closing date.
In order to determine the Veteran’s maximum home purchase amount, it is recommended the Veteran contact a lender familiar with the VA Program to get Pre-Qualified.
Pre-qualification includes the lender reviewing the borrower’s income, assets and liabilities. Using this information, the VA Specialist will be able to estimate the amount of mortgage payment the Veteran can afford, which subsequently calculates an estimated loan amount and purchase price for a home.
Currently, the conventional VA Mortgage limit is $417,000. In certain high cost areas, the amount may be extended to $729,000 or in certain cases, even higher. Having VA eligibility does not automatically qualify a veteran for a mortgage up to these amounts. The Veteran still must qualify based on the income, assets and liabilities of the Veteran and his/her spouse. Veterans should pre-qualify with a VA Specialist to determine their maximum home purchase amount.
Credit Requirements – VA Mortgages
The VA underwriter will analyze a Veteran borrower’s credit in order to determine approval. VA Mortgage approval is not completely driven by credit score, but focuses more on the borrower’s timely payments and credit history over the past 12 months. Under certain extenuating circumstances, the borrower can provide a letter of explanation for the underwriter to review and consider when looking at credit issues during the previous 12 month period.
Note: Veterans concerned about issues on their credit should contact a VA Specialist to review their credit qualifications.
No or Limited Credit History
If the Veteran borrower and/or co-borrower have limited or no credit history (as determined by a credit report) then satisfactory payment history must be established, usually on three trade-lines. Trade-lines include things such as utilities, telephone bills and rental history.
Having a bankruptcy does not automatically exclude a Veteran from getting a VA Mortgage. Depending on whether it was a Chapter 7 or a Chapter 13 bankruptcy, one to two years must have passed since the discharge date. The borrower must also show satisfactory credit history and job stability since the bankruptcy. A VA Specialist can help determine whether a borrower with a bankruptcy in their past will qualify.
Generally speaking, only the legally married spouse of an eligible Veteran is allowed to sign as a co-borrower on a VA Mortgage. If the spouse is a co-borrower, the spouse’s income as well as assets and liabilities will be included in determining both borrowers’ joint qualification.
Even when utilizing 100% financing, the Veteran borrower will still have closing costs that include lender, title and recording fees, as well as pre-paid escrow account items for homeowner’s insurance and property taxes. Currently, the VA Program allows for the seller to pay up to 4% of the loan amount towards the Veteran borrower’s closing costs, which enables the borrower to purchase the home with less “cash out of pocket” at closing. Seller paid closing costs should be negotiated and written into the purchase contract for the home.
Note: There are certain fees that are common in real estate transactions which are considered non-allowable by VA. The Veteran borrower is not allowed to pay these fees and they are most commonly paid by the seller when purchasing a house using VA financing. These fees vary by lender. A VA Specialist at the lender can help determine what the non-allowable fees will be.
VA Funding Fee
The VA Funding fee varies based on several factors including the following:
- Whether or not it is the Veteran’s first VA Mortgage;
- Down payment amount, if any;
- Whether the Veteran was in the Reserves/National Guard;
- If it is a VA mortgage re-finance loan.
Note: In order to determine what the funding fee will be for a specific transaction, the best thing to do is contact a VA Specialist for assistance.
Generally for Veteran home buyers using their VA eligibility for the first time, the funding fee is 2.15% of the amount. Please note that most of the time, the funding fee is not paid “cash out of pocket” but is included or financed into the mortgage. However, there are certain unusual circumstances in which the Veteran borrower would have to pay the funding fee at closing. A VA Specialist can help determine when these circumstances exist.
Certain eligible Veterans are exempt from the funding fee, and it will be waived on their loan transaction. Most commonly, these are Veterans who are rated for Military disability or surviving spouses of those who died in service.