Veterans are among our favorite clients to work with. Buying a new house is a momentous occasion for everyone, but getting to help these heroes and their families find a place to call home is especially fulfilling. Though we can never fully repay the debt owed to them, the federal government does offer specific and exclusive benefits to veterans. One of the most well-known is the VA home loan program. And because a portion of all VA home loans is guaranteed by the U.S. Department of Veterans Affairs, veterans are often able to get into homes with no down payment.
What is a VA Home Loan?
In 1944, the United States Congress passed the Serviceman’s Readjustment Act to extend a wide range of benefits to those military veterans returning home from serving in World War II.
Although many people think the government issues these loans directly, they are instead issued by qualifying lending institutions—ordinary mortgage institutions you are probably already familiar with. Then the government insures part of the loan, meaning those institutions know that should a veteran default on his loan, the government will reimburse the institution for at least a portion of the balance. This added protection gives lending institutions more confidence in the loan and, thus, allows them to eliminate the down payment requirements that most people are subject to.
Who is Eligible for a VA Loan?
Until 1992, the VA home loan program was only available to veterans who had served on active duty during specified periods of time. However, the Veterans Home Loan Program Amendments of ’92 expanded the eligibility of the program.
Most members of the military, including veterans, reservists and Nation Guard members are now eligible for the program along with surviving spouses (provided they have not remarried). The Veterans Administration does not have a minimum credit score requirement, though most lending institutions will want you to have a score of at least 620.
A veteran must have been discharged from service under conditions under dishonorable.
Do You Need PMI with a VA Home Loan?
For most people, obtaining a home loan with a down payment that is less than 20% typically means that they will have to pay for private mortgage insurance (PMI) on a monthly basis until they have built up sufficient equity in their home. However, because VA home loans are insured by the Veterans Administration, the PMI requirement does not apply to those obtaining a VA loan, even though they also are not required to provide any down payment at all. The net result is a significant monthly savings for veterans and their families.
How Many Times Can a VA Home Loan Be Used?
Under certain, specific circumstances, a previously-used VA home loan entitlement can be “restored” to purchase another home. To use the benefit again, individuals’ VA home loans previously used must be paid in full or they must find a qualified Veteran-transferee to purchase the house already bought with the VA home loan: “A qualified Veteran-transferee (buyer) agrees to assume the VA loan and substitute his or her entitlement for the same amount of entitlement originally used by the Veteran seller.”
What Types of Properties Can be bought with VA Home Loans?
There are certain types of properties that are eligible for VA home loans. In addition to single family homes, condominiums and townhouses are eligible, provided the building in question has or gets VA approval. Additionally, VA home loans can be used to make certain home improvements.
VA home loans are also available for new construction, but it can be more difficult to obtain because the builder, house plans, and building site must all receive approval from the Veterans Administration. In a home building scenario, many people opt to build the home with a conventional loan and then refinance at a later date with a VA home loan.
The VA does not place any limits on loan amounts for VA home loans but does limit the guaranty amount based on the county in which the home is purchased. This means that to take advantage of the no down payment benefit, qualifying veterans would need to purchase a home for an amount that is within the limit of the guaranty. You may want to check out a further explanation of that from Military.com.
Don’t be Intimidated by the Process
For all of the great things about VA home loans, one of the most regrettable, though understandable aspects is how intimidating the process can be. All home loans require a lot of paperwork, but VA home loans are admittedly exceptional on that front. If you are an eligible veteran or current service member and thinking about purchasing a new home, we encourage you to visit the Veterans Administration website that outlines the VA home loan program to do some research. Furthermore, we have tons of experience helping veterans with the VA home loan process and would be happy to answer any questions you may have and honored to help you with the process of buying a new home. Just give us a call for a quick chat or, even better, let’s meet up at one of our favorite restaurants in the Phoenix area!