Banks and other private mortgage companies make a special type of home loan to veterans of the US Armed Services who qualify income and credit-wise to purchase a primary residence without putting money down towards the sales price, as long as the sales price does not exceed the appraised value. Veterans do, however, need money towards closing costs and the earnest money deposit, which the seller generally requires when a sales contract is signed. Closing costs may be paid by the seller, which is an item to consider when the sales price is being negotiated . A portion of each loan is guaranteed by the Veterans Administration (VA), and protects the lender's investment if the borrower defaults. The portion that the VA guarantees is called an entitlement. If you have a VA loan and you default on the loan (you do not meet your payment) the Veteran’s Administration will pay the lender the entitlement amount. The VA may still pursue the borrower for the entitlement amount.
Who is eligible for a VA Loan?
*NOTE: Applications involving other than honorable discharges will usually require further development by VA. This is necessary to determine if the service was under other than dishonorable conditions.
Wartime - Service during:
09/16/40 to 07/25/47
06/27/50 to 01/31/55
08/05/64 to 05/07/75
You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service connected disability.
Peacetime - Service during periods:
07/26/47 to 06/26/50
02/01/55 to 08/04/64
05/08/75 to 09/07/80 (enlisted)
to 10/16/81 (officer)
You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service connected disability.
Service after 09/07/80 (enlisted) or 10/16/81 (officer)
If you were separated from service which began after these dates, you must have:
(a) Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or
(b) Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early out), or have been determined to have a compensable service-connected disability;
(c) Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.
Gulf War - Service during period 08/02/90 to date yet to be determined
If you served on active duty during the Gulf War, you must have:
(a) completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable; or
(b) completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early out), or have been determined to have a compensable service-connected disability, or
(c) been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.
Active Duty Service Personnel
If you are now on regular active duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.
Selected Reserves or National Guard
If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and
(a) were discharged with an honorable discharge; or
(b) were placed on the retired list; or
(c) were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service; or
(d) continue to serve in the Selected Reserves.
Individuals who completed less than 6 years may be eligible if discharged for a service- connected disability.
You may also be determined eligible if you:
(a) are an unremarried spouse of a veteran who died while in service or from a service connected disability, or
(b) are a spouse of a serviceperson missing in action or a prisoner or war.
[NOTE: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 16, 2003 that are received after December 15, 2004.]
Eligibility may also be established for:
(a) certain United States citizens who served in the armed forces of a government allied with the United States in WWII.
(b) individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.
What is a Certificate of Eligibility?
It is a document issued by the VA that lets lenders know you are eligible to apply for a VA loan. The certificate does not guarantee the bank will approve your credit application.
To request a Certificate of Eligibility for VA home loan benefits, you must complete VA Form 26-1880 and submit it to one of our VA Eligibility Centers along with acceptable proof of service as described on the instruction page of the form.
It's also possible to obtain a Certificate of Eligibility from your lender. Most lenders have access to the ACE (automated certificate of eligibility) system. This Internet based application can establish eligibility and issue an online Certificate of Eligibility in a matter of seconds. Not all cases can be processed through ACE - only those for which VA has sufficient data in our records. However, veterans are encouraged to ask their lenders about this method of obtaining a certificate.
A Certificate of Eligibility is NOT Necessary for Interest Rate Reduction Refinance of Existing VA Loan
What's the Maximum Amount I Can Borrow?
There is no set maximum for a VA loan, but lenders usually limit it to an amount that can be sold on the secondary market.
What is a Funding Fee?
A fee of 2.15 percent of the loan amount (2.4 percent for Reservists) is payable when the VA loan closes your loan, and can be included in the loan. The fee is reduced if the veteran makes a down payment of at least 5 percent. These rates apply to 1 st time use.
Can I Get a Second VA Loan?
Yes. If your previous loan was made under previous entitlement guidelines, you may be eligible for an additional amount based on today's increased figures, even if the loan has not been paid in full.
Or, your entire entitlement may be restored to purchase another home:
If the property has been sold and the loan paid in full, or if you have repaid the prior loan and still own the property.
If a qualified veteran assumes your loan and agrees to substitute his or her entitlement for yours.
What Are the Benefits of a VA Loan?
100% financing, no down payment loans are common.
No Private Mortgage Insurance (PMI).
No penalties if you prepay the loan.
Competitive interest rates.
Loan qualification is sometimes easier than if you were applying for a conventional loan.
Sellers can pay all closing costs.
What Are the Negatives of a VA Loan?
VA loans made prior to March 1, 1988, can be assumed with no qualifying of the new buyer. If a buyer of such a property defaults, the veteran homeowner may be liable for funds.
Some sellers may be hesitant to work with someone who is acquiring a VA loan because of their past reputation of taking longer to process than conventional loans. While the time may still be a little longer, getting a VA loan is not the lengthy ordeal it once was.
Sellers are often asked to pay a portion of closing costs, so they may not be eager to negotiate the sales price of the home.