1. They’re reusable.
Even if someone has used a VA loan in the past, they’re still eligible for a new loan. Service members can reuse the loan as many times as they like as long as they pay each previous loan off. Furthermore, service members with bankruptcies and foreclosures can still get a VA loan, even if it was a VA loan they foreclosed on.
2. Only certain homes are eligible.
VA loans are primarily designed for move-in-ready homes that will be the service member’s primary residence. While there are a few exceptions, commercial properties, investment properties, and vacation homes are typically ineligible.
3. The VA doesn’t issue the loans.
The VA doesn’t actually provide the loans; they just guarantee the loans (usually up to 25 percent), making lenders more confident and allowing service members to get better terms and rates.
4. No mortgage insurance required.
The VA’s guarantee eliminates the need for service members to purchase mortgage insurance for their loans, saving them thousands of dollars. However, there is a mandatory fee of about 2 percent of the loan amount for VA loan recipients. This fee helps keep the VA loan program going and can be rolled into the loan amount or waived for those with service-connected disabilities.
5. They have co-borrower restrictions.
Having a co-borrower who isn’t the spouse of the service member or another veteran with VA loan entitlement who will also live in the home will require a down payment on the home.
VA loans offer eligible veterans a number of benefits that are not available to recipients of conventional loans. Note that not all of the following features are available to those receiving FHA loans. VA loan benefits include:
100% financing on purchases and refinances. Loans are available up to $690,000 (2019 for San Diego County), although this amount is higher or lower in other areas depending on the cost of living;
No Private Mortgage Insurance (PMI). PMI is money paid to a lender to offset losses in the event that the borrower defaults and the lender cannot recover its investment after foreclosure;
Fixed and adjustable, competitive interest rates;
The loan is assumable, meaning that borrowers can sell their homes to non-veterans and pass along the benefits of the VA loan to the buyers;
Forbearance, in which the federal government can extend leniency to veterans experiencing temporary financial hardship;
No prepayment penalty. Penalties are applied to conventional loans when borrowers choose to pay off their mortgages early, which then gives them the option of refinancing at a lower interest rate;
Easy credit and low income standards, compared with conventional loans;
The builder of a new home is required to give the purchasing veteran a one-year warranty, protecting the borrower against construction that conflicts with VA-approved specifications. Also, the VA will compensate the borrower for correction of structural defects in the home within four years of the loan guarantee if the defects seriously affect livability. An InterNACHI inspector should be hired to inspect for structural defects;
The borrower may be charged only the fees and other costs that the VA considers appropriate;
The down payment may be financed. Closing costs and funding fees still apply, however; and
In California, veterans may be eligible to receive additional benefits from a Cal-Vet Home Loan, such as reusability (you can receive a new Cal-Vet loan whenever you purchase a property as long as you have paid off previous Cal-Vet loans), and earthquake, fire and mudslide protection plans.
In order to be eligible for a VA home loan, the borrower must obtain a Certificate of Eligibility by completing the VA Form 26-1880. Veterans, active-duty, guard, reserve, and military spouses potentially qualify for this certificate. Veterans and active military personnel need to have served for a designated duration, depending on war- or peacetime, in order to be considered eligible. The certificate states the entitlement amount, which is the portion of mortgage that the VA will guarantee for each serviceman. Keep in mind that the Certificate of Eligibility, while necessary for the loan process, only allows an eligible individual to apply for a home loan, but it does not guarantee loan approval.
In summary, VA loans offer eligible veterans a variety of benefits that are not available to recipients of conventional or even FHA loans.
Active duty military members and veterans must complete a certain amount of service before VA loan benefits can be tapped. Military buyers can satisfy the service requirement by meeting ONE of the following criteria:
- 90 consecutive days of service during wartime
- 181 days of service during peacetime
- 6 years of service in the National Guard or the Reserves
Spouses of service members killed in the line of duty or who died from a service-connected disability may also qualify. Advise your buyers that this determination can only be made by the VA.
All VA loan applicants need a Certificate of Eligibility
Military members need to prove to a lender that the service requirement has been met. That’s where the Certificate of Eligibility (COE) comes into play. The COE officially states that the applicant has satisfied the service requirement is eligible to start the VA loan process.
What if my buyer has already used his VA loan benefits?
Previous use of a VA loan does not nullify future VA loan benefits. Repeat borrowers are certainly able to re-use their VA loan benefits, provided that all previous VA loans have been paid in full and the previously-financed properties have been sold.
It’s also possible for a veteran to retain a VA-financed property and purchase a second home (one-time only) with a VA loan. The previous VA loan must have been paid in full and the second home purchased must be used as a primary residence.