These home loans offered by banks and other lending institutions are secured by the Veterans Administration (VA) for veterans of the US Armed Services. This program is guaranteed, protecting the lender's assets should the borrower be unable to pay so provides stimulus for lenders to qualify veterans for home mortgages.
Consider Your Eligibility for a Loan
There are various options to be deemed eligible for this benefit by the VA. Wartime veterans who served at least 90 days and were honorably discharged qualify. Peacetime service veterans need to have served at least 181 days if they served prior to Sept 7, 1980 or at least two years after that date and were honorably discharged. Those serving in the Reserves and National Guard for at least six years and are still serving or have been honorably discharged may also be eligible. Surviving spouses of eligible persons who died as the result of service or service-related injuries who have not remarried may also be eligible. (Contact your local VA office if you have questions about your eligibility.)
Get a Certificate of Eligibility from the VA Before Applying for a Loan
In order to submit an application for a VA loan you must have a Certificate of Eligibility from the Veterans Administration. To get this, go the VA website and get: VA Form 26-1880. Fill it out and send it in along with your DD Form 214 documenting your service, if you served after 1979. This certificate does not guarantee the bank will approve your credit application, you must still qualify financially. Some veterans will be able to get an Automatic Certificate of Eligibility (ACE) through their lender via the internet, if the VA has entered sufficient information about the veteran in their database.
Limitations on VA Loans
VA home loans can only be used to finance your principal residence within the United States or its territories. VA loans can also be used for home refinances as well as some kinds of home improvements as long as you haven't borrowed the maximum amount allowed. You need to check on the maximum amount allowed in your area. The loan limit for 2008 is $417,000 ($625,500 for Hawaii, Alaska, Guam and U.S. Virgin Islands). Qualifying veterans can get a no down payment loan for those amounts. The VA requires payment of a funding fee of two percent of the loan amount or 2.75 percent for reservists which must be paid when you close your VA loan. However, you can ask that this be included in the loan (as long as you remain under the maximum). A down payment of at least five percent will reduce this fee, lowering your monthly payments. These fees fund the VA home insurance fund which benefits your fellow servicemen.
Advantages of VA Loans
Typically, veterans can get 100% financing with no down payment needed. Since VA loans are guaranteed, there is no Private Mortgage Insurance (PMI) required which can be a large monthly savings. Also, there are no penalties if you prepay the loan. Competitive interest rates are available. Finally, loan qualification may be slightly easier than if you were applying for a conventional loan. Sellers may be required to pay all closing costs. Nearly every lender offering FHA loans also makes VA loans.
Disadvantages of VA Loans
Sellers may be cautious to work with someone who is acquiring a VA loan as they used to take longer to process than traditional loans. However, getting a VA loan today takes only a little longer than a conventional loans. Sellers are often asked to pay a portion of closing costs, so be aware of that when negotiating the sales price of the home. The guaranteed maximum allowed may make this not feasible in some markets.
As a veteran, take advantage of this benefit to get into your own home.
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