VA Loans for National Guard and Reserve

The VA loan offers eligible borrowers an outstanding mortgage option. But, confusion exists about the eligibility of National Guard and Reservists. If they meet VA guidelines, these individuals can absolutely qualify for this great loan option. As such, we’ll use this article to explain VA loans for National Guard and Reserve members.

Specifically, we’ll discuss the following:

• VA Loan Overview
• VA Loans for National Guard and Reserve Members
• Confirming VA Loan Eligibility
• Additional VA Loan Considerations
• Final Thoughts

VA Loan Overview

The original version of the VA loan began as a way to provide a path to homeownership for service members returning from World War II. The Department of Veterans Affairs administers the current version of the loan, but it still provides an outstanding home buying option. Of note, the VA loan includes the following benefits:

• No down payment required
• No private mortgage insurance (PMI) required
• Low interest rates
• Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)

However, service members also need to understand who issues VA loans. Despite the name, the VA doesn’t actually issue loans. Instead, it guarantees a percentage of every loan issued by VA-approved lenders. That way, if a borrower defaults on a loan, the VA will reimburse the lender a portion of the outstanding loan balance. This guarantee significantly reduces risk for lenders, which is what allows the above incredible loan terms.

While most veterans and active troops understand their eligibility status, many National Guard and Reserve members don’t know whether or not they qualify for VA loans. In the next sections, we’ll outline the eligibility criteria for both of these organizations.

VA Loans for National Guard and Reserve Members

Both National Guard and Reserve members qualify for the VA loan if they meet one of the below criteria:

• Completed at least six years of honorable service, or
• Mobilized for active duty for a period of at least 90 days, or
• Received a discharge due to a service-connected disability

Confirming VA Loan Eligibility

As the above section illustrates, the VA loan eligibility criteria for National Guard and Reserve members are fairly straightforward. But, the next question these members ask is: now that I know I’m eligible, how do I actually document my VA loan eligibility?

To demonstrate to lenders that you have your VA loan eligibility, you need to request your Certificate of Eligibility, or COE, from the VA. The procedures to request this form depend on how you earned your eligibility.

If you are a current or former National Guard or Reserve member who activated, you’ll need a copy of your discharge or separation papers, that is, your DD-214.

If you are a current National Guard member who never activated, you’ll need a statement of service from your commanding officer, adjutant, or personnel officer showing the following information:

• Your full name
• Your Social Security number
• Your date of birth
• The date you entered duty
• Your total number of creditable years of service
• The duration of any lost time
• The name of the command providing the information

If you are a discharged member of the National Guard who never activated, you’ll need the following information:

• Your Report of Separation and Record of Service (NGB Form 22) for each period of National Guard service, and
• Your Retirement Points Statement (NGB Form 23) and proof of the character of service

If you are a discharged member of the Reserves who never activated, you’ll need the following information:

• A copy of your latest annual retirement points, and
• Proof of your honorable service

Once you receive your COE – via any of the above pathways – you can present it to any VA-approved lender to demonstrate your VA loan eligibility.

Additional VA Loan Considerations

For National Guard and Reserve members who qualify for the VA loan, it’s important to understand several additional considerations prior to applying for one of these loans:

VA Loan Funding Fee

To offset the costs of the VA loan program, the VA charges a funding fee for every loan. This is a one-time fee paid at closing. And, depending on the borrower’s situation, it will range from 0.5% to 3.3% of the total loan value.

Borrowers can pay this fee up-front or roll it into the loan principal and pay it over time.

Minimum Property Requirements (MPRs)

The VA loan program exists to promote homeownership – not investing. As such, the VA wants to ensure that homes purchased with a VA loan meet certain levels of habitability through Minimum Property Requirements. More precisely, homes need to be safe, sound, and sanitary.

To meet these standards, the VA imposes MPRs on all properties purchased with a VA loan. Prior to final approval, the VA will send an appraiser to the property. The appraiser’s primary objective is to estimate a market value for the property. But, he or she will also conduct a surface-level inspection to ensure that the property meets the VA’s MPRs. If a major issue arises, the appraiser will reflect it on the final appraisal report. And, when the VA reviews this report, it will delay loan approval until any MPR issues have been resolved – either by the seller, the buyer, or both.

Occupancy Requirements

Related to the homeownership objective, the VA loan cannot be used to purchase investment properties. When you buy a home with this loan, it needs to serve as your primary residence. To enforce this, the VA imposes an occupancy requirement. Within 60 days of closing on their loan, VA borrowers must occupy the property as their primary residence. And, once occupied, borrowers must live there for at least a year.

NOTE: For activated and/or deployed National Guard and Reserve members, an exception exists to this requirement so long as your spouse can meet the occupancy requirements.

Final Thoughts

Unfortunately, a tremendous amount of uncertainty and misinformation exists regarding VA loans for National Guard and Reserve members. As this article illustrates, these troops can use the VA loan. However, eligibility requirements differ significantly, depending on the character of your service.

If, after reading this article, you remain unsure about your VA loan eligibility, contact the Department of Veterans Affairs. Regardless of National Guard or Reserve service, the VA will walk you through the eligibility requirements and how they apply to your unique situation.

Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.