Don’t bother reading this section if neither you nor your spouse is a United States Military VETERAN. Only veterans are eligible for VA home loans.
To find out if you are an eligible Veteran, all you really need to do is send a copy of your DD Form 214 (your discharge paper) to the VA Office in your State, requesting a Certificate of Eligibility. VA lenders require this form from all VA home loan applicants. Also, any mortgage lender that offers VA Home Loans will be happy to get this for you when you give them a copy of your DD Form 214. There is no expiration date on VA certificates of eligibility. I’ve still got one that was issued in 1975 when I paid off my last one. It’s still good
If you are an eligible veteran with very limited funds for a down payment, a VA home loan is probably your best bet. The cool part of this financing program is that VETERANS CAN BUY A HOME WITH NO DOWN PAYMENT. In fact, when you align yourself with a Realtor familiar with the VA program you have a good ally who can draft a Purchase Contract to maximize the benefit and pay as little as NOTHING DOWN at closing.
As I mentioned above, you are not limited to just one VA loan! One at a time, yes, but when you pay-off your first VA home loan you can request and be granted an additional “Certificate of Eligibility” and use it to initiate another VA home loan. I’ve already had two and I’m eligible for another.
Unlike the ratio analysis used by FHA, VA underwriting guidelines employ a sort of “special sauce” that if planned and played for maximum benefit, can get you more house than you are likely to qualify for on FHA, and at a lower payment.
VA loans do not require you to pay for insurance on your loan like FHA does. You will pay for fire and extended hazard insurance as required on all mortgages, but no mortgage insurance premium to protect the lender in case you default on your loan. One of the benefits your Country provides to you for your time and sacrifice serving in our armed services. Thank you! Really, from the bottom of my heart, THANK YOU for your service!
VA Home Loan Background
VA Mortgages are not insured. They are Guaranteed by our Federal Government. The home loan guaranty program was originally conceived in 1944 as a part of an attack on the harsh aftermath associated with wars. The overall objectives of this attack were to diminish to the greatest possible extent, the economic and sociological problems of post war readjustments for millions of men and women then serving in the Armed Forces.
The program was one of the major innovations and a most important part of the original Servicemen’s Readjustment Act of 1944, Public Law 78-346. The first legal framework was set forth in Title III of that Act. In a way, the loan guaranty program was advanced as an alternative device to a cash bonus, because it would be vastly less expensive to the Government, and because it would better serve the needs of veterans. Expectations at the time suggested that there would be a normal postwar depression shortly after termination of the war. This made it seem important that planning be done to stimulate the redirection of accumulated liquid capital into normal peacetime avenues. I remember what a big deal it was to my parents when they bought their first home using my dad’s VA home loan benefit. I was only 4 years old, but even at that age kids recognize and remember things that adults treat as “special”. It was special.
Currently the VA home loan guaranty amount for loans is indexed to the Fannie Mae / Freddie Mac conforming loan limit at 25% of that limit. That limit is currently $417,000 for loans located in the 48 contiguous States and $625,500 for loans in Alaska, Hawaii, and the South Pacific. Increases in these loan limits will be published annually, based upon the annual adjustment in the Fannie Mae / Freddie Mac conventional loan limit. This amount will automatically adjust every year, along with the conforming loan limit adjustment.
This means that an eligible VA borrower can be approved for a VA Home Loan at the stated maximum conforming loan amount with no down payment. It doesn’t stop there. A qualified VA borrower can get a VA loan above those amounts with a down payment added to the Eligibility amount totaling 25% of the purchase price.
VA Home Loan Example
25% of the $417,000 conforming loan limit enables the Certificate of Eligibility ($104,250) to be used for up to four times the guaranty amount, $417,000 with nothing down! If the veteran wishes to use the VA benefit for a higher priced home, a small down payment can be added to the guaranty amount, resulting in JUMBO financing with very little down. A $500,000 home would be financed with only $20,750.00 down payment. (guaranty of $104,250 plus cash down payment $20,750 = $125,000, 25% of the purchase price!). Very cool benefit, only about 4% down.
As mentioned above, RATIO GUIDELINES are not used for VA loans. Instead, they employ a “special sauce” type of arithmetic that includes something they call “Balance Available For Family Support” that they dictate from a chart that increases according to family size, and changes from time to time. The way they analyze the income and debt often favors approval on loans that would be over ratio on FHA or conventional loans. They draw the line for approvals at about 49.9% of the amount verified as gross salary / earnings from employment. If you qualify for FHA or conventional ratio analysis, you will likely also qualify for VA. In fact, it is not uncommon that you may qualify for a higher loan by using VA.
If you are eligible for a VA home loan, do yourself a favor and inquire of the rate and costs of a VA loan before you select an alternate loan product. You may be pleasantly surprised and find it in your best interests to use your VA entitlement to finance your new home (or refinance your current one).