Veterans Affairs mortgages, better known as VA loans, are a benefit that many active duty military personnel and veterans will use in their lifetime. That makes it important to know as much as we can about VA loans and how they work.
What is a VA Loan and Who is Eligible?
VA loans are “mortgages” made through private lenders but guaranteed by the United States Department of Veterans Affairs. Because of that government guarantee, no mortgage insurance is required, and it is usually easier to qualify for a VA loan than for a conventional mortgage.
Most members of the military, veterans, reservists and National Guard are eligible for a VA loan. Active duty military generally qualify after six months of service. Reservists and National Guard will qualify with 6 years of service, but all that changes if they are called to active duty. After 181 days of active duty, Reservists and National Guard become eligible for a VA home loan. That requirement drops to 90 days of service during periods of war.
VA loan eligibility does not expire, but paperwork is required to assert the entitlement. A veteran seeking to use VA loan eligibility will need to provide the VA with his or her DD-214 and to fill out VA Form 26-1880.
What are the Advantages of VA Loans?
As noted earlier, no mortgage insurance is required. That is an important savings. For example: a borrower who puts a 3.5% down payment on a $200,000.00 conventional mortgage will have more than $140.00 per month in mortgage insurance tacked on to the monthly mortgage payment. That $140.00 per month protects the lender from possible default, but it is of no benefit to the borrower. The buyer keeps paying that extra cost month after month until he builds up enough equity in the home to satisfy the lender. That can take quite a few years. VA loans save the veteran from paying that extra monthly cost.
There will be a one-time funding fee for originating the VA home loan, but that fee will generally be lower than the cost of originating a conventional mortgage. The funding fee varies depending on the type of military service and the amount of the down payment. The fee is waived for veterans on disability compensation.
There are underwriting requirements for VA home loans. These are set by the private lenders who offer VA home loans, not by the VA. Borrowers must show sufficient income to make the loan payments and they must not have excessive debt. The guidelines, however, tend to be more flexible for VA home loans than conventional loans. Of course, not all mortgage lenders offer VA home loans but it is easy to find a lender who partners with the VA.
Can I Use My VA Loan Benefit More than Once?
If the homeowner has paid off the VA home loan but still owns the house, he can have the VA loan entitlement restored one time only for the purpose of purchasing a second home, perhaps for retirement. That right will be subject to the VA’s occupancy requirements which are discussed below.
If the military member or veteran with a VA home loan sells that home and repays the loan, that person’s entitlement can be restored. You can repeatedly use a VA loan to purchase a home, sell that home, pay off the loan, and buy the next house with a restored VA loan entitlement. As a service member or veteran, you can repeat that process over and over throughout your lifetime. Restoration of loan entitlement is not automatic. Application must be made through the nearest VA office by filling out VA Form 26-1880.
Does the Type of Home or Age of the Home Matter?
VA loans can be used only for a primary residence. They cannot be used to purchase vacation homes or income property. VA loans cannot be used to purchase a house in a foreign country. They can only be used for property in the United States.
You can use a VA loan to build a house, but it is a complicated process and may be difficult to accomplish. The challenge is finding a VA approved lender to give you a construction loan. Some people use a conventional construction loan and then refinance with a VA loan once the house is complete.
The age of the house you are buying doesn’t matter, but the condition of the home may determine whether a lender will finance the purchase. Many houses on the market need repairs and upgrades, but the lender may balk at a house needing major work to bring it up to a livable condition.
You can use a VA loan to buy a manufactured home. A manufactured home is one that is built in a factory and delivered to the home site in one or more sections. It can be what is commonly called a “mobile home” that is delivered to a mobile home park and is made to be moved one or more times. It can also be a multi-section home that is delivered and installed on a foundation at a home site. To qualify for a VA home loan, a manufactured home must be built to be lived in year round by a single family and contain permanent eating, cooking, sleeping and bathroom facilities. A VA loan can be used to buy both the manufactured home and the lot it will sit on; it can also be used to purchase and improve a lot where you plan to place a manufactured home you already own.
Modular homes are somewhat different from manufactured homes. While the components of the modular home are built in factories, those component parts are then delivered to the building site and assembled. Modular homes can also be financed with VA home loans. It may be difficult to find a VA loan for a manufactured or modular home with a true $0 down payment. Because manufactured and mobile homes depreciate, lenders usually require some percentage as a down payment. Modular homes are less likely to depreciate, but a construction loan may be needed to complete the home on site.
What are the Occupancy Requirements?
Unlike conventional mortgages, VA home loans have rather strict occupancy requirements. As mentioned earlier, homes purchased with VA loans are intended to be the primary residence of the service member or veteran. If a service member is deployed, the VA considers that to be a temporary duty assignment, and permits the home to remain empty during the period of deployment. The occupancy requirement is met if a spouse lives in the home.
Dependent children can also qualify as occupants, but only if a lawyer or the child’s guardian makes the occupancy certification to the VA. You might see a dependent child as the occupant when the child is residing with a grandparent or guardian while the service member is on active duty. However, please note that many lenders will not approve the VA loan if a dependent child is the intended occupant, rather than the service member or veteran. If you purchase a home with a VA loan, you will be expected to move into the home within 60 days unless you can show extenuating circumstances. The VA almost never allows a buyer to postpone the move-in date for more than 12 months.
What Impact Does Death or Divorce Have on VA Home Loans?
Military members and veterans get divorced just like everyone else in the world. VA home loans are for the benefit of those who have served in the U.S. military. The spouse only has the benefit by association. When a veteran or service member has a civilian spouse, that spouse can participate in obtaining the VA loan. The income of the civilian spouse may be considered by the lender in determining the amount of the loan, and the spouse may be a co-signer on the loan.
If the couple later files for divorce, the VA loan issues can become a problem. The simplest solution is for the divorcing couple to sell the home and divide the proceeds. In that event, the veteran or service member can apply for restoration of VA loan eligibility. If the civilian spouse keeps the house, the spouse is technically in violation of VA occupancy regulations unless the house is refinanced with a conventional loan. So long as the civilian spouse remains in in the home, making payments on the VA loan, the veteran or military member will be unable to restore VA loan eligibility. Once the spouse pays off the VA loan or refinances, the veteran/service member can reapply.
In some instances, surviving spouses of service members or veterans may be eligible for VA home loans. If the service member died while on active duty, the surviving spouse retains VA home loan eligibility. Likewise, if a service member or veteran died as a result of service related injuries, the surviving spouse may qualify for a VA loan. The VA can provide more specific information about the rules regarding spouses of deceased service members.
What Can I Do if I am Delinquent on my VA Home Loan?
The Service Members Civil Relief Act may be a source of assistance to service members and veterans who are delinquent on their VA loans or at risk of foreclosure. The VA, in association with lenders, offers a number of options for struggling homeowners. Call (877) 827-3702 to reach the nearest loan guarantee office. Loan specialists are available at that number who can offer suggestions and ideas to help save the loan. If you are a veteran or service member with a conventional or subprime loan, you can call the same number for assistance.
Another possible resource for distressed buyers is the HOPE NOW Alliance, an alliance of loan servicers, counselors and investors who have come together to help buyers save their homes from foreclosure. HOPE NOW has resources that are unavailable to the VA that can help save homes. www.hopenow.com is the website for the Alliance.
If you have questions about VA home loans or if you need more detailed information, contact the Veteran’s Administration at www.va.gov.
Da Costa, Polyana. “5 Things to Know about Getting a VA Loan.” Bankrate, 3 Oct. 2016, www.bankrate.com/finance/mortgages/getting-va-loan.aspx. Accessed 20 Nov. 2016.
Pallay, Amanda. “VA Loans- Understanding Occupancy Requirements.” Quicken Loans, 30 Sep. 2013 www.quickenloans.com/blog/va-loan-occupancy-requirements. Accessed 20 Nov. 2016.
Pallay, Amanda. “What Spouses of Service Members Should Know About VA Loans.” Quicken Loans, 22 May 2015, www.quickenloans.com/blog/what-spouses-of-service-members-should-know-about-va-loans. Accessed 20 Nov. 2016.
“About Home Loans.” U.S. Department of Veterans Affairs, 30 Nov. 2016, www.benefits.va.gov/homeloans. Accessed 20 Nov. 2016.
“Divorce and the VA Loan Process.” Veteran Loan Center, www.veteranloancenter.com/handbook/divorce-va-loans. Accessed 20 Nov. 2016.
“Get the FAQs on VA Home Loans.” Military.com, 20 May 2012, www.military.com/money/va-loans/home-purchase/faqs-on-va-home-loans.html. Accessed 20 Nov. 2016.
“VA Loan Articles.” VA Loans.com, www.valoans.com/articles/va-loans-and-divorce. Accessed 20 Nov. 2016.