The service of our military members is immeasurable when it comes to securing our nation’s freedom and security. The VA loan program was designed by the government to show appreciation for their service. While VA loans can be applied for with any accredited mortgage broker, certain eligibility criteria must be met. In this article, we will explore VA loans and how they can be a beneficial option for those who qualify.
What is a VA Loan?
A VA loan is a mortgage loan guaranteed by the Department of Veterans Affairs (VA) in the United States. This means that although the VA does not actually lend the money, they insure the loan in case of a default. The primary aim of the VA loan program is to help veterans purchase or build homes with more favorable terms, thereby making homeownership more accessible to those who have served their country.
Who Qualifies for a VA Loan?
Veterans: To qualify, veterans must have served a minimum period of active duty service. Those who served during peacetime must have served at least 181 days of active duty, while those who served during wartime must have served at least 90 days of continuous active duty during wartime.
Active-Duty Service Members: Active-duty service members are individuals currently engaged in full-time service, either in a domestic base, overseas, or in a combat zone. Typically, active-duty personnel become eligible for a VA loan after serving continuously for about six months. In wartime, this requirement may be shorter.
National Guard and Reserve Members: To qualify for a VA loan, National Guard and Reserve members generally need to have completed at least six years of service. However, those who are activated under certain conditions, such as a Title 10 order from the federal government, may gain eligibility sooner.
Surviving Spouses: VA loans are available to spouses of service members who perished in the line of duty or as a result of a service-related disability. A key condition of eligibility is that the spouse has not remarried, although there are exceptions. For instance, those who remarry after the age of 55 or on or after January 5, 2021 may still be eligible.
The VA formally awards eligibility with a Certificate of Eligibility (COE), which verifies to the lender that the borrower meets the necessary requirements.
VA Loans vs. Conventional Loans
Down Payment: One of the most compelling benefits of VA loans is the possibility of a 0% down payment, a feature that significantly lowers the barrier to homeownership. In contrast, conventional loans can require a down payment of up to 20%, depending on the borrower’s creditworthiness and the lender’s requirements.
Mortgage Insurance: Another advantage of VA loans is the absence of private mortgage insurance (PMI). PMI is usually required on conventional loans when the borrower’s down payment is less than 20% of the property’s purchase price. The lack of monthly PMI payments can translate into significant savings for VA loan borrowers.
Interest Rates: Thanks to the backing of the VA, VA loan interest rates are typically lower than conventional loan rates. This can lead to lower monthly payments and less interest paid over the life of the loan. In addition, lower interest rates enhance buying power, allowing veterans to invest in more expensive homes.
Qualification Criteria: While conventional loans are available to the general public, they come with stricter credit and income requirements. Some of these requirements may be difficult for borrowers to meet, especially first-time homebuyers or military service members deployed overseas with limited credit history.
Loan Limits and Property Types: Conventional loans offer more flexibility in terms of loan sums and property types, including options for purchasing investment properties and second homes. VA loans, however, are primarily intended for primary residences and come with loan limits that vary by county.
VA Funding Fee: The VA funding fee is a one-time fee required for all VA home loans, with certain exceptions. It can range from 2.15% to 3.3% depending on whether it is the borrower’s first or subsequent VA loan, and is lower with a higher down payment. This fee can be paid upfront or financed along with the mortgage amount.
Is a VA Loan Right For Me?
For eligible veterans and active-duty service members, the VA loan offers unparalleled benefits that ease the path to homeownership. With competitive interest rates, the absence of a compulsory down payment, and the VA as insurance, VA loans are a superb choice for the lucky few who qualify.
That said, VA loans for designed for primary residences and may not be suitable for all borrowers. For example, borrowers who need jumbo loans (for high purchase price properties), want to purchase investment properties, or wish to use their home equity as a form of debt consolidation may find the terms of conventional loans more flexible and cost-effective.
In summary, a VA loan is a great choice for eligible veterans and active-duty service members looking to purchase a home for themselves. However, it may not be the best fit for those seeking to purchase a second home or an investment property. Speak to your mortgage broker for expert advice on choosing the loan that fits your needs.
