A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs, or the VA. The loan may be issued by qualified lenders. The VA loan was designed to offer long-term financing to eligible American Veterans, or their surviving spouses (provided they do not remarry).
While the VA loan is designed specifically for those who have served our country, there are a handful of requirements, such as specific service conditions that each borrower needs to meet.
You are eligible for a VA home 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
You are the spouse of a service member who has died in the line of duty, or as a result of a service-related disability
All Veterans that meet the criteria, must first obtain a Certificate of Eligibility (COE), a document that explains what VA entitlement you possess, through the Department of Veterans Affairs. VA Loan applicants may also obtain their Certificate of Eligibility themselves by filling out a Certificate of Eligibility Request Form (VA Form 261880). The form can be downloaded through the Veterans Administrations site and mailed directly to the VA.
VA LOAN INCOME REQUIREMENTS
Homebuyers interested in a VA loan are not required to reach an income threshold to use their loan benefits. However, they are required to have a stable income that will cover all monthly expenses – including their new mortgage payment.
Additionally, the VA requires that their borrowers maintain a certain amount of income left over each month after all major expenses are paid. This residual income, is to cover typical family needs such as: Food, clothing, transportation, and family fun night.
WHY CHOOSE A VA LOAN?
There is no down payment. Building credit and saving money can be a difficult thing for most service members who are constantly on the move. You are able to finance 100% of the home’s value without putting down a dime.
You do not need private mortgage insurance. Most lenders require private mortgage insurance unless the borrowers are able to put at least 20% down. This can be very hard for most veterans. But, with a VA loan there is no private insurance!
Competitive interest rates. Interest rates on home loans are based on risk assumed by the bank to finance the loan. Because the VA backs each VA loan with a guaranty, bank’s carry less risk and can offer interest rates that are typically 0.5 – 1$ lower than conventional rates.
Basic Allowance for Housing (BAH) is a significant benefit for qualified active military members. Lenders can count your Basic Allowance for Housing as effective income, which means you use the BAH to pay some or all of your monthly mortgage costs.
With many different types of loans, paying off a home loan before it matures results in a pre-payment penalty. This is because lenders miss out on additional opportunities to collect interest payments. The prepayment penalty is a way for financial institutions to recoup some of their money. With the VA loan, there is none of that.
If you are interested in building a new home, come pay me a visit at the office. We are a Certified Builder, through the VA Loan Guaranty Program. I have literature on most government backed loans, especially the VA loans. I can get you set up with an appointment with Mr. Toback, and we can see about building you your dream home!
If you are not a Veteran, please check out this article we put out in December 2015.
Until next time friends…
Nicole D., Tobacks Resident Blogger