The Five Ws
What: What is a VA Home Loan?
When: Now! Your home awaits
Where: On www.Halfbare.com
Why: To learn about VA Home Loans
Common Questions Veterans ask about VA Loans
What is a VA loan?
The VA Home Loan was created in 1944 by the United States government to help returning service members purchase homes without needing a down payment or excellent credit.
This historic benefit program has guaranteed more than 22 million VA loans to help veterans, active duty military members and their families purchase homes or refinance their mortgages.
The VA itself isn’t in the business of issuing home loans. Instead, the agency provides a guarantee on each qualified mortgage loan.
The VA typically guarantees up to a quarter of the loan amount which gives lenders confidence and helps service members secure great terms and rates.
There are no limits on how much you can borrow, but there are limits on how much the VA will guarantee.
One of the benefits of VA loans, also known as Veterans Affairs mortgages, is that they consistently offer lower rates than traditional bank financing, according to Ellie Mae.
Eligible borrowers may only use VA loans for their primary residence. You can’t finance an investment property or vacation home with a VA loan.
But, you can qualify for a second VA loan.
What are VA Entitlements?
The VA guarantees a portion of your mortgage via “entitlements.”
There are two types of entitlements offered to eligible veterans: basic entitlement and bonus entitlement.
The basic entitlement is $36,000 or 25 percent of the total mortgage if you default; you would get the lesser amount of the two.
Generally, lenders will loan four times this amount, so you can think of the basic entitlement as a 25 percent down payment on a $144,000 home. However, you don’t have to use the full entitlement.
As home values continue to trend upwards, most home buyers will be faced with price tags in excess of $144,000, or the max loan amount for basic entitlement.
This is where the bonus entitlement kicks in.
In 2018, the median sales price for a home hovered around $315,000, so for most VA buyers, the bonus entitlement is necessary. This is also called a second-tier entitlement.
The VA uses the national conventional financing conforming loan limit set by the Federal Housing Finance Agency, or FHFA, to establish the bonus entitlement amount. The FHFA boosted loan limits in 2019 to $484,350.
In high-priced areas, the ceiling is higher at $726,525, or 150 percent of $484,350.
Home buyers can check loan limits in their area here.
The VA covers 25 percent of your loan amount, so eligible borrowers would get 25 percent of $484,350, which is $121,087. Then the VA subtracts the basic entitlement, which is $36,000, from the $121,087, leaving borrowers with a total of $85,087 in bonus entitlement money.
Keep in mind, lenders will generally loan VA borrowers four times the amount of the entitlement.
This means you would multiply $85,087 by four, which is $340,350. Finally, you would add the $144,000 VA loan limit from your basic entitlement to the $340,350 sum which gives you a total loan limit of $484,350 — the same as the national conforming loan limit.
For home buyers in high-cost states, the entitlement amount is larger.
In counties with higher limits, the VA will guarantee 25 percent of a maximum $726,525. If your mortgage exceeds that limit, the VA won’t cover it. That means on a $900,000 home in a high-cost area, the VA will only back 25 percent of $726,525.
It is possible to use your entitlement more than one time. This depends on several factors such as how much entitlement you have left (you don’t have to use all of it when buying a house), mortgage amount and county loan limits.
The goal of VA loans is to help veterans become homeowners no matter where they live, so don’t let a costly housing market or a prior VA loan deter you from exploring this option.
This might seem confusing so I provided some examples below!
Buying your First Home — Example 1
Veteran has full entitlement available and is purchasing a home for $300,000 where the county loan limit is $484,350.
$484,350 X 25% = $121,087.50 Maximum Guaranty and Available Entitlement
$300,000 X 25% = $75,000
Since the VA’s guarantee is limited to the lesser of 25% of the county loan limit or 25% of the loan amount, the VA will guarantee $75,000 on the Veteran’s $300,000 loan in this county. A down payment will not be required.
Buying your Second Home — Example 2
Veteran has used $48,000 of entitlement on a prior loan, which may not be restored (i.e. has a home he bought and is renting since he PCSed), and is purchasing a home for $320,000 where the county loan limit is $625,000.
$625,000 X 25% = $156,250 Maximum Guarantee
$156,250 — $48,000 = $108,250 Entitlement Available
$108,250 X 4 = $433,000 Maximum Loan Amount with 25% Guarantee
Since the proposed loan amount will be less than $433,000, the lender will receive 25% VA Guarantee on the loan of $320,000. A down payment will not be required.
Buying an expensive Home — Example 3
Veteran has full entitlement available and is purchasing a home for $500,000 where the county loan limit is $484,350.
$484,350X 25% = $121,087.50 Maximum Guarantee & Entitlement Available
$121,087.50/ $500,000 = 24.21% Guarantee
Since VA’s Guarantee will be less than 25%, a down payment will likely be required to meet investor requirements.
$500,000 X 25% = $125,000
$125,000 — $121,087.25 = $3,912.50 Down Payment will be required!
What are the VA Loan eligibility requirements?
Members of the military, veterans, reservists and National Guard are eligible to apply for a VA loan.
Spouses of military members who died while on active duty or as a result of a service-connected disability can apply as well.
Active-duty military personnel generally qualify after about six months of service.
Reservists and members of the National Guard must wait six years to apply, but if they are activated before that, they gain eligibility after 181 days of service.
You may qualify if you:
- Served 90 consecutive days of active service during wartime
- Served 181 days of active service during peacetime
- Have been an active member of the National Guard or Reserves for 6 years or more
- Are married to a service member who died in the line of duty or as a result of a service-related disability
It’s important to note that getting a Certificate of Eligibility (COE) doesn’t mean veterans qualify for a mortgage — these are two separate processes.
Once you qualify for a COE, you can shop for a home loan. However, you still have to meet lender requirements which include things like income verification, credit (FICO) score, and debt-to-income ratio.
What is a COE? We will discuss it later!
What are VA loan home occupancy requirements?
VA loans typically require borrowers to move into their home within 60 days of purchase and to use it as their primary residence.
However, exceptions can be made depending on the circumstances, says Chris Birk, director of education at Veterans United.
“Lenders will evaluate occupancy scenarios on a case-by-case basis. For active duty service members, a spouse can fulfill the occupancy requirement when the military member cannot. A service member’s minor child can also satisfy occupancy in some cases.”
Borrowers can’t use VA loans to buy investment properties.
What are VA loan amount limits 2019?
The limit on VA loans varies by county, but the maximum guarantee amount for 2019 is $484,350 in most US counties and up to $726,525 in certain high-cost areas.
How to apply for VA Loan Certificate of Eligibility (COE)
Before you can apply for a VA loan, you must prove you are eligible.
Applicants must get a Certificate of Eligibility (COE).
Again, eligible service members, veterans and spouse must meet one of the following criteria:
- You’ve served 181 days of service during peacetime.
- You’ve served 90 days of service during war time.
- You’ve had six years of service in the Reserves or National Guard.
- You are a surviving spouses of a service member who died in the line of duty.
There are three ways to apply for the COE:
- Request a COE from your lender. Lenders have access to a database which can produce your COE within minutes.
- Apply for the COE online at VA.Gov. You’ll have to log into your account and navigate to the COE application page.
- Mail in your application. Print out this form, fill it out and include applicable proof of eligibility.
Documents required for COE:
Veterans and current or former National Guard or Reserve members in Federal active service
DD Form 214 — This must include a copy showing the type of service and the reason for leaving.
Active duty service members, Current National Guard or Reserve members who have never been Federal active service
An up-to-date statement of service signed by the adjutant, personnel office or commander of the unit or headquarters.
It must include:
- Your name
- Social Security number
- Date of birth
- Entry date of active duty
- Duration of lost time
- Name of the command providing the data.
Current National Guard or Reserve member who has never been Federal active service
An NGB Form 22, report of separation and record of service for each period of National Guard service.
An NGB Form 23, Retirement Points Accounting and proof of the character of service.
Discharged member of the Selected Reserve who has never been activated for Federal active service
A copy of your latest annual retirement points statement and evidence of honorable service.
Surviving Spouse receiving DIC (Dependency & Indemnity Compensation) benefits
Submit VA form 26–1817 and veteran’s DD214 ( if available)
You must include the veteran’s and surviving spouse’s social security number on the 26–1817 form.
Surviving Spouse not receiving DIC (Dependency & Indemnity Compensation) benefits
You must submit VA form 21–534.
You must submit form DD214 (if available), which proves discharge orders.
Include a copy of your marriage license.
Include the death certificate or DD Form 1300 — Report of Casualty.
Send the VA 21–534 to the mailing address in your state. You can find that information on the following link. PMC States
How to apply for a VA loan?
Once you have your certificate of eligibility (COE), you can apply for the VA loan. The application process is straightforward, however keep in mind that not all lenders originate VA loans.
Find a VA lender and pre-qualify to get an estimate of how much house you can afford based on your income, credit, entitlement and other financial factors.
You can get a quote with your bank online anytime. Pre-qualification is a basic first step that paves the way for a much more powerful step — VA loan pre-approval.
Loan pre-approval is a major step and puts you in the driver’s seat to spring into action when you find a home you love.
Lenders will verify income and financial information to get a clear sense of your purchasing power. The end result is receiving a pre-approval letter.
These letters show real estate agents and home sellers you’re a strong and serious buyer who has what it takes to get to closing.
Put in an offer
When you and your agent find the perfect VA loan approved home, it’s time to craft an offer and negotiation a contract with the seller.
It’s important to find a VA loan savvy agent you trust that also knows the ins-and-outs of VA loans.
VA Appraisal and underwriting
Once you’re under contract, your lender will order a VA appraisal of the property. This is to ensure you’re overpaying for the home!
Underwriters will evaluate your income, financial and related documents along with the appraisal once it’s finalized.
If everything checks out, you’ll be issued a clear to close and move on to your loan closing.
You’ll sign all kinds of legal documents and paperwork at your loan closing and get the keys to your new home.
You’re now a home owner!
This had made the VA loan a lifeline for Veterans and active Military home buyers.
What some veterans don’t know is that the VA loan can be used for cash-out finance, interest rate reduction refinance loan (IRRL), Native American Loan program, adapted housing grants and owning multiple homes.
Look out for future articles related to these topics!
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