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Eight Things You Need to Know about VA Home Loans

If you are a veteran of the United States Armed Forces, or if your deceased spouse was a veteran, you may be eligible for a home loan through the US Veterans Administration. This program offers many benefits for veterans, but the amount of information about VA home loans can be overwhelming. Here are eight top things you need to know about VA home loans.

1. VA home loans are not just for active duty soldiers.

While VA home loans used to be exclusively for active duty soldiers, they are not any longer. Since the Veterans Home Loan Program Amendments of 1992, National Guard members and reservists who have served for at least six years and don't qualify in any other way are also eligible for the loan. 

2. The government is not the lender in these mortgages.

Although the loan is called a "VA home loan," the US government is not the actual mortgage lender. The government does, however, guarantee the loan, making it easier for veterans to obtain loans with traditional lenders. Borrowers do need to meet minimum credit requirements with those lenders. Another advantage of having the government guarantee the loan is that no private mortgage insurance (PMI) is required

3. VA home loans offer financial protection for those who are actively serving.

Because active duty military personnel might not be able to pay their mortgages otherwise, VA home loans have been traditionally frozen at a reasonable interest rate, and soldiers may not lose their homes due to hardships faced by being in active service. This is the result of the Servicemembers' Civil Relief Act. 

4. The loan percentage is generous. 

Veterans can borrow up to the full amount of the home's value. There is an additional loan fee that can be assessed at the time the mortgage is taken out. The loan fee can be financed as part of the loan, and sometimes this fee is waived in cases of disability. Closing costs cannot be included in the loan, but they may be paid by the seller of the home. 

5. There are some caps on how much you can borrow.

The VA caps their home loans by county. In general, the loan was designed to help soldiers in rural and small city areas. There are some counties that the VA recognizes as extra high cost, though, and these areas receive a higher loan cap. 

Your loan amount is also based on a multiple of your military entitlement. You should check your benefits portal to determine that amount. 

Additonally, the maximum amount you can borrow is based on your income. You will need pay stubs and tax documents to qualify for a VA home loan. 

6. To qualify, you need to fill out a Certificate of Eligibility (COE). 

The first step in initiating a VA home loan is completing a Certificate of Eligibility (COE). You can do this on the VA portal or through some lenders. Ideally, you want to choose a lender that is familiar with VA loans, as this will make your loan process much easier. 

You will need to meet a minimum number of days of service, among other criteria as mentioned above. Surviving spouses of deceased military may also qualify. In this case, you need to provide a marriage certificate and death certificate for your spouse and cannot have remarried since your spouse's passing. 

7. You can use the VA home loan to refinance your home with a cash-out option.

A helpful aspect of the VA home loan program is that loans can also be used for cash-out refinancing of an existing home. You can use the equity in your home to help pay bills, go back to school, or do renovations on your home, for example. 

You can also convert a non-VA loan to a VA loan using the cash-out refinance program. Because of all the advantages listed above and below, if you have a non-VA loan, you may want to give this serious consideration. 

8. The loan has many appealing features. 

In addition to the benefits already mentioned, VA home loans have many other attractive features:

  • No down payment is required.
  • The VA sets a limit on how much you can be charged in closing costs.
  • There is no pre-payment fee if you pay the loan off ahead of schedule. 
  • You can reuse this benefit multiple times.
  • Your mortgage loan can be assumed by any other party who qualifies. 

Whether you're a first-time home buyer or a "veteran" at real estate transactions, the VA home loan program may have many elements to offer you. For further information, contact the Veterans Administration or a lender who is linked with the VA home loan refinance system and knows the application process.