The U. S. Department of Veterans Affairs (VA) is a government agency established to assist active duty service members, veterans, and eligible surviving spouses. One program they offer is to provide a home loan guaranty to help eligible persons to buy, build, repair, retain or adapt a home for personal occupancy.
VA Home Loans are provided by private lenders, such as banks and mortgage companies. A portion of the loan is guaranteed by the VA and thus enables the veteran to achieve more favorable terms from the lender. VA Home Purchase Loans allow the purchase of a home at competitive interest rates and often without the need to provide a down payment or private mortgage insurance (PMI).
A Cash-Out Refinance Loan allows eligible veterans to take cash out of their home equity to take care of financial concerns like paying off debt, funding education, or making home repairs. The Cash-Out Refinance Loan can also be used to refinance a non-VA loan.
The VA will guaranty loans up to 100% of the value of the home. Most VA Home Loans are handled by private lenders. The VA rarely gets involved in the loan approval process, but guarantees a portion of the loan on behalf of the borrower.
The maximum loan amount of VA program is $625,500, but this amount may vary depending on location.
VA Home Loan advantages:
- No down payment, as long as the sales price does not exceed the appraised value
- No PMI required
- VA guidelines for closing costs
- Closing costs may be paid by the seller
- No penalty fee charged if the loan is paid off early
- VA assistance if you run into difficulty making payments
Who is eligible for a VA Loan?
Service members and veterans must obtain a Certificate of Eligibility (COE) to be eligible for the VA Home Loan program. Active duty personnel are eligible for a COE once they have served at least 90 days of active duty.
Veterans who have been discharged under conditions other than dishonorable and meet certain service requirements are eligible for a COE. The specific service requirements for veterans can be found at the VA’s website.
The spouse of a veteran may also be eligible under certain conditions, such as an un-remarried spouse of a veteran who died while in service or who had a service connected disability, MIA/POW, and certain totally disabled veterans.
Veterans may restore their entitlement if they had previously used it to purchase a home; and the property was sold and the loan paid in full.
What is the VA Home Loan buying process?
The process to purchase a home and fund the mortgage with a VA Loan is similar to that of used for a traditional mortgage, with a few unique steps associated with the VA Loan. The following is a general outline of the steps that need to be taken.
COE. Apply to the VA for a Certificate of Eligibility which will verify to the lender that you meet eligibility requirements for the VA Home Loan program.
Realtor. Find a real estate professional to work who will help you identify suitable homes, assist you with all paperwork, help with appropriate aspects of the financing application.
Lender. Locate a lending institution that participates in the VA Home Loan program. In most cases, a lender will pre-approve you for a loan, which will facilitate the home purchase negotiations. Shop around among several lenders for the best rates and fees.
Shop. Work with your real estate professional to identify a home and negotiate a purchase agreement. Ensure that the purchase and sales agreement contain a “VA Option Clause”, which offers some protection to the purchaser through the negotiations and closing process.
Apply. Work with your lender to complete the loan application and provide necessary documents, such as debt statements, W-2 Form, DD-214, and pay stubs.
Processing. The lender will order a VA appraisal of the property and begin to process your financial information and application. After the appraisal and document research, the lender will approve (or disapprove) the loan.
Closing. The closing will be conducted with the assistance of a title company, an attorney, or one of the lender’s representatives. At the closing meeting, the property will be transferred and funding for the mortgage will be finalized.
What are the VA Loan fees and limits?
VA Funding Fee. This fee is a percentage of the loan amount that must be paid at closing and covers a portion of the administrative fees associated with the VA Loan process. The funding fee percentage varies based on several categories of applicants.
For an individual consultation concerning the VA Loan program, call a Member Services Advisor at AAFMAA at (800) 522-5221.
John Sledgianowski is an AAFMAA Benefits Advisor.