The VA helps current military members, veterans, and even surviving spouses finance a home. The guaranty they provide helps you buy, refinance, repair, or adapt a home as long as it’s your primary residence. The VA doesn’t fund the loans – private, VA-approved lenders provide the funds. The VA guarantees up to 25% of the loan, allowing lenders to have flexible underwriting guidelines including providing 100% financing.
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Veterans receive two types of entitlement for the VA loan. Every eligible veteran receives basic entitlement, which equals $36,000. This entitles veterans to a loan amount of up to $144,000 with no down payment. Since housing in many areas of the country costs much more than $144,000, the VA also provides bonus entitlement up to $77,275. This entitles veterans to a loan amount of up to $453,100, which is also the national conforming limit.
The amount of entitlement a veteran has only makes him ‘entitled’ to that loan amount; it doesn’t mean you automatically qualify for it, though. You must prove that you can afford the chosen loan amount by providing adequate proof of your employment, income, and other current liabilities.
Veterans have several loan options at their disposal as long as they meet the VA loan requirements.
VA Purchase Loans
VA Purchase Loans provide you with up to 100% of the purchase price of the home. Veterans don’t need a down payment and you have flexible underwriting guidelines. VA loans do not require any money down or monthly mortgage insurance payments. In order to be eligible, you must meet one of the following:
- Served 90 consecutive days during wartime
- Served 181 consecutive days during peacetime
- Served 6 years in the National Guard or Reserves
- Your spouse died while on active duty or as a result of a disability from his service
The VA’s relaxed underwriting guidelines make qualifying simple for veterans and their families:
- Have stable, consistent income that covers the mortgage payment and any other existing liabilities
- Have a specific amount of residual income or money left to cover the daily cost of living, such as food and clothing
- Have a stable and reliable credit history
- Buy the home for owner occupancy
- Have a valid Certificate of Eligibility
VA Cash-Out Refinance
The VA cash-out refinance is available to veterans with a current VA loan as well as veterans with any other loan program, such as FHA or conventional loans. Veterans can tap into the equity in their home, borrowing as much as 100% of the home’s value. Veterans can use the funds to consolidate debt, pay for school, or make home renovations. Any refinance from a non-VA to a VA loan is considered a VA cash-out refinance.
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The VA cash-out refinance has similar guidelines to the VA purchase loan. Veterans must have:
- Stable income that covers the higher mortgage payment and any existing debts
- Proof of adequate residual income given your family size and home’s location
- Occupy the property as your primary residence
- A decent credit history with no recent defaults
- A Certificate of Eligibility
VA Interest Rate Reduction Refinance Loan (IRRRL)
Only veterans with a current VA loan may utilize the benefits of the VA IRRRL program. It’s strictly a VA loan to VA loan program. Veterans can use this program to lower their current interest rate or change the type of loan they carry, such as an adjustable rate to a fixed rate loan.
Veterans can only refinance the amount of their current outstanding balance plus closing costs and the funding fee. Veterans cannot take cash out of the home’s equity. In order to qualify, veterans must:
- Currently have a VA loan
- Have no late mortgage payments if they’ve held the loan for less than 12 months
- Have no more than one 30-day late mortgage payment if they’ve held the loan for at least 12 months
- Have verifiable employment (verifying income isn’t necessary)
What does the VA loan guaranty mean?
The VA guarantees loans funded in their name which means they promise the lender they will pay them back 25% of the defaulted loan amount if you stop making your payments. This is why the VA entitlement is so important. Each veteran has a maximum loan amount the VA will guarantee for them at any one time. Once you exceed the limit, you use up your VA benefits.
Is entitlement only for one-time use?
Once you use your entitlement, it remains tied to that property until you pay the loan off in full and sell the home. The VA does grant a one-time exception for those veterans that pay off the VA loan but want to keep the property. It may also apply to veterans that are relocated (either military or civilian work) and need to buy another home. If you don’t pay off the existing VA loan, though, you may only use your remaining entitlement to buy another home.
Can you get a VA loan from any lender?
Not all lenders offer VA loans. The VA must approve the lender to offer these loans. Once you find VA-approved lenders, it’s a good idea to get a few quotes as each lender has their own requirements and fees.
Can you build your own home with a VA purchase loan?
Yes, the VA does allow borrowers to use the VA purchase loan for new construction. The trick, though, is finding a willing lender. Because of the risk involved with a construction loan, not many lenders offer this service. You may have a better chance securing financing from your local bank or even the builder and then refinancing the loan with a VA loan once the home is complete.
Do you have to live in the home that you used your VA benefit on?
Yes, VA loans are only for owner-occupied properties. The only exception to the rule is the VA IRRRL program. You don’t have to certify that you will live in the home when you refinance with this program. The loan program is not to be used for any other purpose, such as buying a vacation home or investment property.
Can you buy a multi-unit property with a VA loan?
You can buy a multi-unit property with a VA loan as long as you live in one of the units. This is how you qualify as an ‘owner.’ You are free to rent out the remaining units and use the money to help you pay the mortgage.
Find out if you are eligible for a VA loan.