The VA Home Loan program offers many advantages to eligible veterans, active duty service members, members of the National Guard and Reserves, and their families. However, acquiring a loan can be confusing and often deters people from beginning the process in the first place. According to Veterans United, "fewer than 13 percent of the nation's 22 million veterans have utilized the home loan benefits earned by their service."
If you're a veteran and would like to become a homeowner or change properties, it's in your best interest to find out if you're eligible for a VA loan before committing to a conventional home loan option. Fortunately, there are many help options that can guide you through the process, such as your local VA center or a VA approved lender. To begin, this article outlines the essential things to know and the paperwork you will need to get started.
What is a VA Home Loan?
It's important to understand that the VA does not make loans directly to veterans. Rather, VA approved private lenders or banks finance the loan to veterans, and the VA guarantees a portion (usually 25%) of the loan.
This means if you were to default on the loan, the VA would guaranty to repay the lender a portion of the loan. As explained by Veterans United, "This guaranty, which protects the lender against total loss should the buyer default, provides incentive for private lenders to offer loans with better terms." For example, VA loans do not require the buyer to make a down payment (unless the sales price of the home exceeds the appraised value), they offer competitive interest rates, and do not have monthly mortgage insurance premiums--among other things.
VA loans can be used to:
- Build or purchase a home.
- Purchase a condominium unit (in VA approved housing).
- Finance home improvements in a residence owned and occupied by a vet.
- Refinance a non-VA loan or an existing VA loan.
- Buy a manufactured home or lot.
- Install a solar heating or cooling system or other energy-efficient improvements.
Click here for more information on the types of available VA loans.
Who approves the loan?
The bank or lender can pre-approve a veteran for a loan, can help a veteran with the loan application, and can finance a loan. However, because the VA guarantees the loan, the VA has final say on whether or not to approve it. If the veteran has met the minimum eligibility requirements, he or she should receive a VA home loan, but there have been a few cases where a vet has been denied. For example, the VA could deny a loan if they felt the property was in disrepair after inspection, or if the property didn't meet the value of the loan, etc.
Am I eligible?
If you are a veteran, active duty, guard, reserve, or a surviving spouse, you are potentially eligible for a VA home loan. In addition, you must meet these requirements:
- You must have sufficient income to keep up with loan payments.
- You must have a good credit rating.
- You will be required to live in the home you're acquiring the loan for.
- You need to obtain a Certificate of Eligibility (COE).
How do I obtain a COE?
There are many ways to get started on the VA Home loan process, but one of the most important first steps is obtaining the Certificate of Eligibility.
It's not difficult to obtain a Certificate of Eligibility, but there are a few steps you need to take. First, you must have been discharged under other than dishonorable conditions and/or meet the service requirement outlined on the VA website.
You will also need to present documented proof of service, such as a DD-214 or a statement of service. Click here to view the paperwork you will need depending on your veteran, active, guard, reserve, or military spouse status. Once you have checked the service requirement and collected the proper documents, there are several ways to obtain a COE.
- Online: You can apply for the COE online through the ebenefits portal. If you are eligible and the VA has sufficient data in its records for you, the COE will be issued after a few seconds. Or, if you do not have enough data recorded and the system cannot process your case right away, you can submit an online application.
- By Mail: Another option includes completion of Form VA 26-1880 (also called the Certificate of Eligibility Request Form) and mailing it, along with the paperwork documenting your service, to the VA:VA Loan Eligibility Center
Attn: COE (262)
PO Box 100034
Decatur, GA 30031A surviving spouse will need to fill out VA Form 26-1817 or VA Form 21-534.
- VA Regional Loan Center: If you live near a VA Regional Loan Center, you can take care of the paperwork on location.
- Through a lender: Most lenders have access to the WebLGY system, which can establish a veteran's eligibility and quickly generate a COE if the VA has enough data on file for the vet.
It's important to note that a obtaining a COE does not mean the VA approved you for a loan. It is proof that you are eligible for a VA loan.
Acquiring a VA loan can be a lengthy process--one that really begins after obtaining a COE.
Stay tuned for our next blog article, which will more fully explain how to connect with a VA approved lender, get pre-approved for a loan, and begin the process of becoming a homeowner.