There is an extensive home loan program in place for U.S. military personnel, veterans, and eligible surviving spouses, in recognition of their service and sacrifice for their country. The program allows for such individuals to purchase – or in some cases, build or repair – a home for personal use and occupancy. This military home loan service was started to ensure an equal opportunity for military members to become homeowners. As a serviceman or woman, past or present, you deserve a safe place to call home and the VA home loan program helps ensure that you have that option.
How Do Veterans Administration (VA) Home Loans Work?
VA home loans, sometimes also called military mortgages or VA mortgages, are issued through private lenders, just as conventional loans are. However, there are a number of advantages that current military personnel and veterans should be informed on.
At the core, the Veterans Administration guarantees a portion of the loan, in case of a default, so that military participants in the program will qualify for better loan terms. They also have better interest rates and terms and are easier to qualify for than a conventional loan. Let’s take a closer look at the advantages of a military mortgage.
Advantages of VA Home Loans
There are several key perks of VA home loans and mortgages. In fact, there are nine specific reasons that make them unique and beneficial to veterans and service members.
- A portion of your VA home loan is guaranteed by the Veterans Administration. How much depends on the loan amount itself. While there is no maximum loan amount, typically, the VA guarantees 25% of loans over $144,000, with a potentially higher percentage guaranteed toward smaller loans. Keep in mind, there is a limit to the guarantee, usually $417,000, after which you may need to pay towards a down payment to cover the non-guaranteed portion.
- VA mortgages offer competitive interest rates. The interest rate for a VA loan will often be a lower rate than conventional loan offers, thus lowering the monthly mortgage payment.
- VA loans are generally easier to qualify for. You don’t need to have a perfect credit score to qualify for the Hero Home Program. In fact, even with past credit issues, you could still be approved as long as you meet current employment and income requirements. Lenders will look at the entirety of your financial profile, unlike with a traditional mortgage.
- VA loans typically have no or low down payment requirements. With a regular home loan, you may be required to put down as much as 20% towards the final purchase price. This can be a hefty amount upfront and would likely make you tap into your savings. VA loans offer low down payment options, or no downpayment home loans in some cases.
- There is no monthly mortgage insurance required. Again, this would be a standard cost for conventional loans. On average, mortgage insurance is about 1% of the loan amount per year. This could cost upwards of $300 a month, a significant saving for those that qualify for the Hero Home Program.
- Lower closing cost of the loan. There is a limit in place ensuring you can’t be charged more than 1% of the origination fee. This lowers your closing costs significantly.
- Only need enough cash for closing costs. Private lenders normally require you to have enough cash on hand to pay for at least two months of mortgage payments. There is no such obligation with a VA loan. You will only be responsible for closing costs, which are typically between 1%-5% of the loan amount. If interested, speak to your real estate agent about your qualifications to receive seller closing assistance.
- Refinance more easily. If you need cash to pay off debt, school, etc., you may be eligible for a VA cash-out loan. Additionally, it will be easier to refinance for a lower interest rate altogether.
- A higher debt to income ratio is allowed. Lenders typically want to see a debt to income ratio that is smaller than 36%. With a VA home loan, those numbers are relaxed and a higher ratio is allowed.
- Other perks. State to state, there may be more resources offered to veterans via the VA home loan program. For example, some may even qualify for property tax reductions. As this varies from state to state, it is important that you speak with a Hero Home Program specialist who understands the ins and outs of military home loan programs.
Ensure Your Eligibility for a VA Home Loan
Now that you have an idea of the benefits of obtaining a VA home mortgage, let’s take a look at qualifying to participate in the program.
First, you’ll want to check that you are eligible to participate in the VA home loan program. There are different timeframes for VA home loan eligibility, as outlined below.
If you have served for 90 consecutive days of active duty during wartime OR 181 consecutive days during peacetime, you are eligible for the Hero Home Program. If you served for a minimum of 6 years as a National Guardsman or in the Reserves, you are eligible for a VA loan. If you are the surviving spouse of a deceased service member who died in the line of duty, you are eligible for a VA loan.
Once you’ve determined your eligibility, you will want to obtain a valid Certificate of Eligibility (COE) for verification purposes. This is something your lender can help you request. While having a COE in hand is not a requirement of applying for a VA loan, it will be required later down the road, so having it nearby is beneficial for you.
You will also want to gather some key financial documents for loan processing, such as your bank statement and current pay stubs. You’ll also want a list detailing your major debts, such as any current loans or credit card payments. Your lender will provide you with a list of documents that are required, but knowing what they will ask for ahead of time will help the process go smoother.
VA Home Lender Options
There are a number of participating VA lenders, including Veterans’ First Mortgage, Quicken Loans, AmeriSave, Freedom Mortgage, and Rocket Mortgage. Choosing who to apply with isn’t always an easy choice, especially when the choices are big lending corporations. That’s why it’s recommended that you work with a military home loan program such as Hero Home Program. Such programs assign you an account representative who is a specialist in the VA home loan industry. Your specialist will work to find you a VA home mortgage lender that offers special grants and/or discounts to your local area. Their focus is you and your homeownership dream.