The VA loan benefit is a unique and highly valuable one. Once a military member has served a minimum time on duty (the length of which depends on the dates of service and whether the member is on active duty, serving in the National Guard or as a Reservist) he or she becomes eligible to apply for this important military benefit.
VA Loan Eligibility
Once a military member severs the minimum time in service, they are eligible to apply for a VA loan. However, the ability to apply for the loan is not the same as loan approval. This is an important distinction to make since all applicants must financially qualify for a loan with FICO scores, credit and employment history, etc.
VA Loans Are Issued By Participating Lenders
One common misconception about the VA home loan program is that the Department of Veterans Affairs lends the money, sets and regulates interest rates on VA mortgage loans, etc.
The reality? In order to apply for a VA mortgage loan, you must find a participating VA lender. You will apply for the loan through the lender, and negotiate the interest rate with the lender. The VA does not set interest rates on VA mortgages and the only requirements issued by the VA for interest rates is that they must be “reasonable and customary” for similar non-VA transactions based on market conditions.
No Down Payment VA Loans
VA mortgages offer the borrower the ability to buy without a down payment. You must be financially qualified to get a zero-money-down VA mortgage. Some borrowers with marginal FICO scores may be required to make a down payment as a “compensating factor”. Lender requirements vary in this area, so borrowers must ask a loan officer what the FICO score standards are at that financial institution.
Down Payments And The VA Loan Funding Fee
Some borrowers choose to make a down payment even if they are able to choose the no down payment option. This is because making a down payment can reduce the VA loan funding fee required as part of the transaction. Some borrowers (with VA-rated disabilities) are totally exempt from paying the VA loan funding fee-ask your lender whether you qualify for an exemption.
VA Loans Are For Owner-Occupiers Only
VA mortgage loans can only be used to buy primary residences-a home the buyer intends to live at as their main address. Military deployments, temporary duty, and similar assignments are not considered a violation of the owner-occupier rules; it is understood that a military member may be sent to a war zone, deployed to another country, sent on temporary duty elsewhere, etc.
Military members can purchase a home without occupying it as their primary residence as long as a spouse or qualifying dependent occupies the property on their behalf. This exception to the VA loan occupancy rules is only for immediate family members as described above.
VA Loans Are Not For Investment Properties
While VA mortgages are permitted for residences with up to four living units, a borrower cannot purchase a home the borrower intended as a rental property unless the borrower intends to occupy one of the living units. You cannot purchase an investment property with a VA mortgage loan-occupancy is always required.
VA Loans Are For Many Different Types Of Homes
Qualified borrowers can apply to purchase suburban homes, but also condo units, townhouses, manufactured homes, and mobile homes. The type of property you can purchase with a VA mortgage is quite diverse, but the home must be primarily residential in nature. Any property to be purchased with a VA mortgage must be taxable as “real property” which means it must be affixed to a permanent foundation as the final disposition of the property. That’s why houseboats, recreational vehicles and similar types of purchases cannot be made with a VA mortgage.
VA Loans Can Refinance An Existing Mortgage
You can use your VA loan benefit to refinance an existing non-VA mortgage. Borrowers do not have to use the same lender as the original mortgage, and you will find VA mortgage loan interest rates more competitive than some conventional mortgages. Refinancing into a VA mortgage loan may make sense for those looking for a lower mortgage rate or interested in getting out of an adjustable rate mortgage into a fixed-rate VA loan.
Remember, interest rates are offered to a borrower based on FICO scores and other financial qualifications. Some borrowers may not be eligible for the most competitive rates if credit scores are lower or “marginal”. Speak to a loan officer about your ability to refinance an existing non-VA mortgage into a lower rate based on your credit qualifications.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News