11 Common VA Loan Myths Debunked

Is a VA loan a good idea? You may have heard things about the VA loan program that seem a little fishy or make you hesitate to get one.

Because the VA loan is unique in the mortgage world, it can be easy for rumors and misinformation to spread about how the program works, who can qualify, and other specifics. 

However, the VA loan is designed specifically to make homeownership more accessible to veterans. It’s a benefit every veteran has earned through their service, and we would hate for you to miss out on it just because of a few rumors.

So, if you’re wondering if you should get a VA loan, this article can help you sort through what’s fact and what’s fiction.

Myth #1: The VA Offers the VA Home Loan Directly

Perhaps the biggest of the VA loan myths is that the loans are done directly through the VA. 

Additionally, some veterans think that both the VA and private lenders offer VA loans, and they wonder why they’d go through a private lender if they could just go straight to the VA.

The VA, however, does not lend money directly to veterans. Instead, it guarantees a certain percentage of each VA loan. The loans themselves are offered through private lenders. 

How Does the VA Guaranty Help Veterans?

The VA guaranty means that even if a veteran defaults on a loan, their lender will receive a percentage of the loan back from the VA.

This makes it less risky for lenders to take on VA loans, allowing them to offer major advantages, such as:

-Lower rates than conventional loans
-No down payment
-Requirements that are easier to meet
-No private mortgage insurance (PMI)

The VA also has certain qualifications that must be met by lenders who offer VA loans, as well as specifications on how they can use the loans. These limitations are in place to protect veteran borrowers from predatory lenders.

Keep in mind that these requirements don’t mean that every VA-approved lender offers similar loans. Once the basic requirements are met, there is breathing room for lenders to offer different rates and terms.

This is why you will want to do your research to find the best deal you can. Comparing lenders is essential to getting the lowest rates possible.

Additionally, even though private lenders offer VA loans, this doesn’t mean they all specialize in this type of loan or have experience with it. So look for a lender who focuses on serving veterans and regularly closes VA loans.

Myth #2: You Can Only Use the VA Loan Once

Another misconception about the VA loan is that veterans can only use it on one purchase or refinance.

The way it really works is simple:

Each qualifying veteran has a certain amount of VA entitlement, which is the amount of money the VA will guarantee on the loan. If you don’t use all of your entitlement on the purchase of your first home, you can usually use the remainder when you buy your next home.

In addition, you can also restore your entitlement in some situations. Restoring your entitlement only works if you have either:

  1. Sold the home under specific circumstances (listed in the graphic below), or
  2. Paid off the loan
Restoring VA Entitlement

Your entitlement may be restored if you meet one of the following requirements:

-Pay off the initial house you used your entitlement on and have your entitlement restored to get a loan for a second property
-Have another veteran assume your VA loan, renewing your entitlement
-Have the original loan paid off after it’s taken on by a civilian
-In some cases, you don’t have to have your loan paid off, but you do have to have enough leftover entitlement to get another loan without restoring that entitlement

When your entitlement is restored, it’s as if you’ve never used it, and you can have full access for your second VA loan.

For more information about your specific situation and entitlement, you should speak to a VA-approved lender.

Myth #3: You Need Great Credit to Qualify

What Are Overlays?
VA lender overlays are when lenders add their own requirements to a loan, on top of what the VA requires.

One major benefit of the VA loan program is that the VA has no required credit score.

However, private lenders may have their own overlays, including specific credit requirements. Because these requirements vary, veterans should make sure to contact multiple lenders, even if they’ve been turned down by one for having less-than-excellent credit.

Myth #4: VA Loan Requirements Are Hard to Meet

One misconception is that VA loans have strict requirements. This myth is especially surprising considering that the requirements on VA mortgages are more relaxed, which is one of their biggest benefits.

As discussed above, your credit doesn’t have to be perfect to get a VA loan. Though some lenders hold strictly to their overlays, others, like Low VA Rates, are willing to talk to borrowers to look at their individual situation and do what we can to help them qualify.

On top of having no VA-imposed credit requirements, VA loans:

  • Have lower average interest rates than other loan types
  • Don’t require a down payment
  • Limit the closing costs a veteran has to pay
  • Have no prepayment penalties
  • Don’t require private mortgage insurance (PMI)

Check out our video below to learn just how simple it is to qualify for a VA loan.

Myth #5: You Must Be a Combat Veteran to Qualify

Contrary to what you may have heard, many veterans and servicemembers are eligible for a VA loan.

Check out our graphic below for the basics.

VA Service Requirements

You may meet service requirements for a VA loan if you:

-Have 90+ consecutive days of service in active duty military
-Served on active duty during peacetime for at least 181 consecutive days
-Have 6 or more years of service in the National Guard
-Are the surviving spouse of a veteran who died as a result of service

Myth #6: The VA Loan Process Is Too Complicated

Because the VA loan is part of a government program, some veterans worry about the paperwork and time frame involved.

However, as previously discussed, the VA loan is not offered directly through the government. Instead, it’s offered through private lenders, which take care of any government-related details for you.

What Is Automatic Authority?

Automatic authority is when lenders obtain permission from the VA to close on loans independently.

Look for lenders that have automatic authority, which allows the loan process to go smoothly and simply. Unlike other lenders, those with automatic authority don’t have to get approval from the VA every time they close a VA loan.

Additionally, lenders must meet the VA’s experience requirements to be eligible for automatic authority,

To make the VA loan process even easier, you should also look for lenders that focus on VA loans and close them regularly.

Myth #7: Every Veteran Gets a VA Loan—No Matter What

Though it’s easy to qualify for a VA loan, not every veteran is automatically eligible.

As previously outlined, you have to meet service requirements as well as other financial requirements in order to get a VA loan. No lender is required to give a VA loan to a veteran if that veteran does not qualify.

Keep in mind that some veterans may meet qualifications with one lender but not another.

Myth #8: The VA Appraisal Is a Huge Hassle

There are a few extra requirements for a VA appraisal. These VA requirements, called Minimum Property Requirements (MPRs), ensure that the home is safe, sound, and sanitary. They can be thought of as an added protection or benefit for veterans.

Let’s say the home you’re looking at has termite or structural damage or is otherwise in bad condition. In these cases, even though the appraisal may take longer, it’s worth it because you’d want to know this kind of information before you buy the house.

Franco Firpo, a loan officer with Low VA Rates, adds that another reason it can take longer is because, as of 2019, “the VA has to assign the VA-approved appraiser, and there usually aren‘t as many VA-approved appraisers in a specific area.”

But even with their extra requirements, VA appraisals, on average, only take around 10 days. In comparison, conventional appraisals can usually get approved and done within 24-72 hours. While there is a difference, it’s not very significant.

Additionally, the VA requires that VA appraisals close within set time frames that vary between states (and sometimes counties). Visit the online appraiser schedule and click on your state to learn what the VA-mandated appraisal timeline is for your area.

Myth #9: Foreclosures or Bankruptcies Disqualify You for a VA Loan

How Long Do I Have to Wait?

If you’ve had a Chapter 7 foreclosure, you can apply for a loan after waiting for 2 years.

If you’ve had a Chapter 13 bankruptcy, you can apply as long as you’ve made on-time payments for 1 year.

Even if you have a bankruptcy or foreclosure in your history, you can still apply for a VA home loan. In fact, VA loans require a shorter waiting period for these situations than conventional loans do.

Keep in mind that it’s still not guaranteed that you’ll qualify, and it can be hard work building credit and other qualifications back up again. If you don’t meet the requirements just yet, a good VA lender will help you create an action plan to get back on track.

To listen to loan expert Maurice Navarro discuss the reality of foreclosure and VA loans, watch the video below.

Myth #10: You Can Only Own One House with a VA Loan

As discussed under Myth #2, if you have enough entitlement to get a second loan and meet the requirements, you can purchase a second home with your VA entitlement.

However, the details depend on your specific situation and get pretty complicated, especially in regards to the occupancy rule.

What Is the Occupancy Rule?

In general, this rule states that you must intend to live in the home you’re purchasing with a VA loan as your primary residence within 60 days.

However, there are some exceptions, like for servicemembers with PCS orders.

To find out if you qualify to buy a second property with a VA loan, you should talk to a VA lender.

Myth #11: VA Loans Can’t Be Used on Condos or for Construction

Both condos and new homes can be purchased using a VA loan.

You can use a VA loan to buy a condo as long as the property is approved by the VA. To find out if the condo you’re interested in is VA-approved, you simply need to check out the VA’s list of approved condos.

If a property you like isn’t already on the list, you can still get it approved through the VA. A realtor familiar with VA loans can help, or you can talk to the property manager to get the process started.

In addition, contrary to what you may have heard, it is possible to use a VA loan to build a new home.

Some VA lenders don’t offer VA financing for building a home because it can be a more complex process than what they want to take on. (No wonder some vets think they’re not offered at all!)

Other lenders, like us at Low VA Rates, do offer the loan type and are happy to work with you as you build your dream home.

Check out our video below for more information on how you can use a VA loan to finance a newly constructed home.

More Myth-Busting

What else have you heard about VA loans?

Leave a comment with anything you’d like to know more about, and we’d love to answer in the comments, or even add it to the article!

Meanwhile, for more resources, check out our videos and posts below.

Everything You’ll Need to Get a VA Loan

Checklist of info you'll need to get a VA loan

Sometimes it can seem like there’s a lot you have to provide in order to meet the requirements to get a VA loan. However, we’ve put together this list of everything you’ll need so it’s all in one place.

Not only will reviewing this list prepare you to meet with a loan officer, but it will also help you be sure that you’re even eligible for a VA home loan.

Personal Data

There is a variety of personal information you’ll need to fill in when you apply for a VA home loan. Some of it, like your name, phone, number, address, and birthday, you should already know.

Some information, though, you might not remember off the top of your head, so it’s better to make sure you know it before you start filling out an application.

In addition to the information already mentioned, you’ll also need to provide:

  • Your social security number
  • Any past addresses for the last 2 years
  • Your highest grade level completed in school
  • Your ethnicity and race*
  • Your government-issued ID card
  • How many dependents you have, along with their ages
  • What state you want to buy a house in

*This information will not affect your ability to get a loan. However, all mortgage lenders are required, by law, to ask it. It will simply be reported to the government to make sure your lender is in compliance with the Equal Credit Opportunity Act (ECOA) and the Home Mortgage Disclosure Act (HMDA).

Certificate of Eligibility (COE)

Your COE is one of the most important documents needed to get a VA loan. The easiest way to get this information is to actually have your lender request it. However, you may also send in a request yourself, though doing so usually takes longer.

Credit History

Even though a minimum credit score isn’t one of the VA’s requirements for a VA home loan, your score will be pulled by lenders in order to determine your interest rate. In addition, some lenders do create their own internal credit score requirements, but Low VA Rates is not one of them.

Besides checking your credit score, another reason lenders look at your credit history is to make sure you’re not behind on loan payments or collection fees.

When it comes time to have your credit pulled, you’ll want to have the following information ready:

  • The social security numbers for everyone getting a credit check
  • A list of all your debts, including auto loans, student loans, credit cards, and other lines of credit, to make sure they’re correct on your credit report
  • Proof of any errors on your credit report, if applicable
  • The amount you spend on childcare each month, if applicable
  • Bankruptcy and discharge documents, if applicable
  • A way of explaining any late payments, if applicable

Income, Employment, and Assets

In addition to your debts, you’ll also need to be prepared with evidence of your income, assets, current employment, and recent job history. To this end, you’ll need to provide:

  • Your job history for the last 2 years, including the name, address, and phone number for all your employers, and the dates you worked for each
  • Your pay stubs from the last 30 days or your latest Leave & Earnings Statement (LES)
  • Your W2s for the last 2 years
  • Pension, retirement, and/or social security award letters and related 1099s, if applicable
  • Divorce decree and settlement documents, if applicable
  • Bank statements from the last 60 days as evidence of the money necessary for any down payment and/or closing costs, if applicable
  • Statements from your retirement account from the last 60 days, if applicable
  • A list of any real estate you own
  • 2 years of tax returns, if you’re self-employed
  • Any tax returns showing income from commissions or rentals, if applicable

Military Service Information

To prove one of the most important home loan qualifications, you’ll want to gather the following documentation:

  • A copy of your DD-214, if you’re separated from the service
  • A statement of service signed by your commanding officer & your LES if you’re on active duty
  • Evidence of future stable income if you plan to leave the service less than a year after closing on your home

Real Estate Documents

Finally, you can try to gather the following real estate documents:

  • A contract to purchase the real estate, which should be signed by the seller and you
  • A VA appraisal of the property, which your loan officer can order
  • The contact information of your homeowner’s insurance agent
  • The contact information of your homeowner’s association, if applicable
  • An inspection report on the property, which is wise but not required

However, if you’re not able to gather all of these before meeting with your loan officer, don’t worry—they can help you get them.

Contact Low VA Rates to Get Started

Once you’ve gathered all of the information you can, we hope you reach out to us. All of our loan officers are experienced in VA loans, so please contact Low VA Rates today.

The VA Amendatory Escape Clause And Its Effects

If you’re not aware of the VA Amendatory Escape Clause, it’s something you should definitely be aware of. While the VA escape clause can be a big pain point for the seller, the seller’s reaction can cause significant consternation to the borrower, to the extent that the seller may refuse to sell the home. As a VA loan borrower, it is very wise to know exactly what the VA escape clause entails and to do your part to let the seller know ahead of time that the Escape Clause is coming and what it means.

 

What Is the VA Loan Escape Clause?

So what is the VA amendatory escape clause? Well, the official VA language of the Escape Clause is as follows: “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.” See a sample of the VA escape clause pdf provided by VA.gov

In plain English, the VA amendatory escape clause form means if the home’s selling price is higher than the VA appraisal determines to be the reasonable value of the home, the borrower can walk even if they have already signed a contract to purchase the home. To understand this provision fully, it is important to review the VA loan process. A home buyer applies and gets pre-approved for a VA loan at a certain amount. Using that knowledge, they begin hunting for a home. A suitable home is found, the buyer makes an offer, and the offer is accepted (if only it was really that simple, right?). Then comes all the paperwork, both things that are common among all loan types and those that are VA loan specific. One of the VA loan specific hoops to jump through is the VA appraisal, conducted by an official appraiser. One of the purposes of the VA appraisal is to determine the actual value of the home. After the appraisal, the VA will issue a Notice of Valuation (NOV) that states what the VA deems is the fair market value of the property. There’s just one tiny, little, minuscule issue here; this appraisal definitely takes place after the offer has been accepted and probably after a contract has been signed by seller and buyer for the agreed upon amount.

 

What Are My Rights If I Am Not Comfortable Signing the VA Loan Escape Clause?

Why is this an issue? Because the VA absolutely will not guarantee a loan amount that is higher than what the NOV states are the fair market value. So . . . what if the buyer has already agreed to pay a certain amount that is higher than the VA is willing to guarantee? Enter Escape Clause. Once the NOV comes in, if the “fair market value” as determined by the VA is lower than the selling price, the buyer can still back out, or they can opt to pay the price and just have a portion of the loan not be guaranteed by the VA. Since many borrowers can’t afford to pay these extra expenses themselves without VA guarantee, the Escape Clause prevents them from being forced into this situation.

 

Why is the VA Loan Escape Clause Required?

The VA loan escape clause is mandatory as it protects the buyer that qualifies for a VA loan from being locked into a sale if the VA home appraisal comes back at a lesser value than the agreed upon price by the buyer and seller. It also protects the buyer from any penalties or fees for backing out of the sale. The Department of Veteran Affairs includes the VA loan escape clause because they will not offer a loan for an amount greater than what they appraise the property to be.

 

Is the VA Loan Escape Clause Negotiable?

What is more, the Escape Clause is non-negotiable and the VA Escape Clause form must be included in every VA sales contract. If the VA escape clause disclosure is not included in the Department of Veterans Affairs residential purchase and sale agreement, the clause must be amended. In a lot of ways, this throws the seller under the bus, especially if the seller was not aware of the Escape Clause. Sellers often make important life decisions after the contract to sell their home for a certain amount is signed (since, you know, signing a contract usually establishes a legal obligation to fulfill the terms). Those important life decisions might become the worst things that ever happened to them if a buyer decides to walk out on a $300,000 contract. You can imagine why a seller might be downright irate if the Escape Clause slaps them in the face.

 

Pay Attention to the Wording

So as a potential buyer, what can you do to alleviate this? First, see what language your lender uses in the Escape Clause. The wording on a lender’s version of the Escape Clause might be subtly (but importantly) different from the official VA Escape Clause. A common adjustment is to change “exceeds the reasonable value of the property . . .” to “matches the reasonable value of the property . . .” This essentially gives the buyer the power to walk for any reason whatsoever as long as the sale value isn’t the exact same as the appraised value. If language like this is used, you can expect that a seller would rather de-list the home than selling it to a VA borrower. Knowing in advance what the lender’s Escape Clause states and making the seller aware as well can quite literally make the difference between getting your dream home and not.

 

Good Communication with the Lender and Seller

Remember that the seller is able to renegotiate the terms of the sale as long as no laws are violated. They can adjust the asking price or even de-list the property. In all home sales, it’s important to maintain good communication with both the lender and seller. This way, you will be able to cut down on any unwanted surprises at closing.

At Low VA Rates, we pride ourselves on being transparent and educating all our borrowers on their different options. To learn more about VA loans and the different loan options we offer, check out other pages on our site. To get started on your loan application now, call 866-569-8272.

What Is the Minimum Credit Score for a VA Loan?

Drawing of cell phones showing different credit scores with their ratings

Many lenders require your credit score to be above a certain number before they’ll issue you a VA loan. And they’re allowed to do that.

But there isn’t a minimum credit score for VA loan qualification according to the VA’s guidelines, so Low VA Rates chooses not to require one. We can, and often do, work with veterans who have very low credit scores.

Good and Bad Credit Scores

To refresh your memory, the lowest possible credit score is 300, and the highest is 850. Lenders often rate scores like this:

  • <550: Bad
  • 550–649: Poor
  • 650–699: Fair
  • 700–749: Good
  • 750+: Excellent

We know that some veterans with low scores have just had financial trouble in the past, but they’re now able and willing to pay their debts. And some veterans just haven’t had a chance to build a credit history yet.

Because of these reasons, we’ve chosen to help them instead of just turning them away for a loan.

How to Improve Your Credit Score

Of course, we’re still aware of borrowers’ credit scores, and there’s a cost to a low score: you probably won’t be able to get the best interest rates, which leads to higher monthly payments.

Some borrowers choose to work on improving their credit score before taking out a mortgage—even if it takes a year or two. You’re going to pay off a house over many years, so it can benefit you to have lower payments over that whole period.

And we’ll definitely work with you any time you’d like to get a quote! And, if we find out your credit score doesn’t qualify you for the interest rate you’d want, we’ll work with you directly to help raise it, even if it means waiting a while before you can get a mortgage from us.

But, in the meantime, if you’re not quite ready to call in and talk with a loan officer, here are five tips that can help you start raising your score now:

  1. Never be late on debt payments
  2. Keep low or zero balances on credit cards
  3. Only get one new line of credit at a time
  4. Pay off debts as soon as possible, beginning with the one that has the highest interest rate
  5. Order your credit report once a year and fight any mistakes in it

One thing to note is that, even if you follow these pieces of advice exactly, you might not see an improvement to your credit score for several months. This is especially true for paying off a debt.

The reason for this delay is that it can sometimes take a few months for the credit bureaus to remove that debt from your credit report. But we promise, if you follow these steps, it will happen!

Even if you don’t have any kind of credit history, these five pieces of advice still apply, though in a slightly different way. Essentially what you’ll want to do is get a single credit card and follow these five guidelines in how you use that card.

Doing so will help you start building a positive credit history, and once you’ve developed good habits with one card, you could apply for another one, and so on, to keep that positive credit data growing.

How Low VA Rates Can Help Those with Low Credit Scores

We specialize in loans for veterans. If you talk with one of our loan specialists—some who are veterans like you—he or she will look at several factors in your background.

One of the first and most important is your honorable military service is first. The next important qualification is the stability of your income, which can be from a job, VA disability payments, or investments.

They’ll also help you add up all your expenses, including debt payments and the potential VA loan, to make sure you’ll have enough money left over at the end of each month. This is a VA guideline, which helps the VA loan program to be safer for you and for all veterans.

And, while they’ll also look at your credit score, we know that a high credit score doesn’t always guarantee that someone can handle a new mortgage because their situation may have changed.

We also know the opposite is true, so even if you have a low credit score, you can qualify for a good VA loan as long as you can show your willingness and ability to afford and pay for it.

So, whether you choose to improve your credit score first or you want to buy your home right away, Low VA Rates will be here to help.

Why a Young College Veteran Should Get a VA Loan

Young College Veterans and VA LoansYou’re about to hear some crazy advice: If you’re a young, college veteran, then you should take our a mortgage.  This isn’t typical college student advice, but then again, young veterans aren’t typical college students.  If you’re a VA-eligible borrower under 26, then you might want to consider this, regardless of factors like marriage.  Find out why you should buy a home, why you should use a VA loan, and which VA loan option is best for you.

Why You Should Buy a Home

At your age and situation, you probably haven’t started thinking much yet about retirement, or investing money for the future. The thing is, now is the best time to be thinking about those things, because you have so much time to build up massive retirement accounts by the time retirement arrives. So many people don’t start thinking about retirement until it’s only 10 years or 15 years away, and 10-15 years is not very long in investing years. If you’re 25, you have 40 years until retirement, which gives you an awesome amount of time to get your retirement in order. One of the first, easiest, and smartest ways to get started saving for retirement is to buy a house instead of renting. While you’re in college, you’re hopefully using the GI bill, which includes a housing stipend, which is perfect for helping you afford a house instead of renting. Don’t look for a massive house; rather, look for a small house that’s reasonably priced, and spend some time fixing it up over the few years that you own it, which will increase it’s value above the natural market increase over time. Buying a home allows you to save money by putting it into your home instead of throwing it away on rent, and counts as an investment since you’ll be selling it at some point.

Why You Should Use a VA Loan To Do So

Compared to conventional loans, VA loans get you lower interest rates, easier qualification standards, and better loan options (which we’ll talk more about in the next paragraph). Unless you’re super-responsible with money, you probably don’t have nearly enough saved up for a down payment on even a small house, and that’s OK. With the VA loan program, you don’t have to make a down payment if you don’t want to. If you do decide to make a down payment, you can expect even lower interest rates and better offers from lenders than you already get by using a VA loan. VA loans don’t require mortgage insurance even if you don’t make any down payment at all, which makes them a better option than FHA loans. Especially when you’re buying a smaller house, you can do a VA loan with very little money down, since you can take out not only the down payment but also the VA Funding Fee, which can be rolled into the loan amount, leaving only the lender’s 1% origination fee and maybe another 1% in other fees such as the appraisal.

Which VA Loan Option to Look AtWhich VA Loan is Right for You as a Young Veteran

If you can, you should stay away from the 30-year fixed. You are simply not going to be in this first home long enough to accrue any useful amount of equity if you buy with a 30-year fixed and make the minimum payment. If you start with a 15-year fixed, you’ll be building equity much faster and paying a ton less interest. Even better, since you probably aren’t going to be staying in the home for longer than 5 years anyway, you may want to go with the VA hybrid ARM, and get a really low starting rate that’s fixed for the first 3-5 years, and then adjusts by no more than 1% annually. Starting rates on the VA hybrid ARM are usually even lower (often significantly) than starting rates on 15-year fixed loans, which are in turn lower than interest rates on 30-year fixed loans. So, in summary, you should look first at the VA hybrid ARM, and if you don’t like what you see, you should go to the 15-year fixed. If you go with a 30-year fixed, you’ll throw most of your money each month away on interest and your “investment” will not be nearly as valuable nor grow nearly as quickly.

If you want to learn more about why it’s a smart decision for a young college veteran to get a VA loan, contact us today!

How Much House Can You Get with a VA Loan

Let’s say you’ve just found out that you’re eligible for the VA loan program. Firstly, congratulations! VA loans are generally one of the best How Much House You Can Buy with a VA Loanoptions. Plus, if you qualify for it, it means that you’ve served and sacrificed for our country. Not everyone is that awesome.

Secondly, you might have a few questions. For example, now that you know you can buy a house with a VA loan, exactly how much house
can you buy? Take just a few minutes to find out where your range is and get the home of your dreams!

VA Entitlement

Entitlement is what makes the VA loan program possible. Here’s how it works: The VA offers each eligible veteran a certain amount of entitlement (separated into basic and additional, but that’s not important). This entitlement amount is the maximum amount the VA will pay to the lender on behalf of the borrower if the borrower defaults on the loan. For the most part, the VA will pay around 25% of the loan amount to the lender on behalf of the borrower. This guarantee lowers the amount of risk that the lender is taking on when they give the VA borrower a loan, which means that they are willing to offer lower interest rates and better loan terms than for conventional loans. The exact amount of entitlement is more complicated to explain than can be justified here. Just know Bottom line is the VA guarantee will cover 25% of it.

VA Entitlement and How Much House

Find Out How Much You Get with a VA LoanHere’s the thing about the VA guarantee and the VA loan program: it doesn’t really affect how much house you can afford. It does in a nominal way by allowing you to get a lower interest rate than you could get on a conventional loan, but it doesn’t substantially change your debt-to-income ratio or how expensive the home is. While it would be pretty cool for the VA to use your entitlement to subsidize your home purchase, that’s not how the program works, and the way it works is a much smaller burden on taxpayers but still provides a lot of benefit for veterans and can be used more than once. So all of this is nice information, but what about the crux of the question: how expensive of a house can you buy with a VA loan?

How Much House Can You Buy with a VA Loan?

The Fed has loan limits for home loans that it insures, and that limit is, for the most part, $417,000. Many counties that are more expensive have higher limits, but you’ll need to find out from a lender if yours is one of them. The VA loan limits are exactly the same. Here’s the thing, though – that county limit is in place for all loans, not just VA. So how does anyone buy a home more expensive than that? Through jumbo loans, which allow for higher amounts to be borrowed. The VA loan program also allows for jumbo loans, which means that any home you can qualify to buy through a conventional loan you’ll also be able to buy through a VA loan, at least as far as the cost of the home is Buying a Home with a VA Loanconcerned.

There may be other things that prevent you from being able to purchase that home (such as the sale price being higher than the reasonable
value of the home), but as long as you can financially qualify for the cost of the home you’re buying, you won’t be restricted by the VA loan program. This is a common misconception of borrowers learning about the VA loan program; they expect that there are some limits to the size of the house or the price of the house you can buy using your VA loan benefits. The VA allows you to purchase essentially any home you qualify for financially as long as it meets all of the other criteria the VA has set for homes purchased through its program. Contact us or comment below with questions about your VA loan!

Simplifying VA Loan Approval – The Four Points To Remember

The process of getting approved for a VA loan can seem daunting to some, and there are copious amounts of information available on VA loan approval. While the great majority of information is intended to help potential borrowers understand the VA loan approval process, it can get quite confusing hearing so many different people explain the process and requirements in different ways, especially when they leave certain things out or emphasize other aspects. In an effort to help you understand what will be expected of you in order to be approved for a VA loan, here is a list of the four basic points to make sure you’re solid on. These four points can be found in the VA lender’s handbook and constitute the guidelines lenders are encouraged to follow when considering a loan application, so you’re getting inside information here.

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The first point is VA entitlement. For a borrower to get approved for a VA loan, the first hurdle to jump is making sure that you are eligible for the VA loan program. If you’re not eligible in the first place, you can bet that you won’t be approved for a VA loan. To be eligible you must have satisfied the service requirements and have enough of your entitlement available to cover the home you are trying to purchase. The word ‘entitlement’ refers to the dollar amount that the VA will guarantee on behalf of the lender at any given time. Generally, full entitlement is $417,000, but it can be more in higher-cost areas in the country. Entitlement and eligibility can be reused. To make sure you are eligible for the VA loan program, you will need to apply for a Certificate of Eligibility (COE). Instructions can be found online, or you can work with a lender to have them assist you in submitting the application. Most lenders are more than happy to assist with this.

The second point is Property Eligibility. Just like a borrower has to be eligible for the VA loan program
, a property does as well. The VA will only guarantee homes that can serve as the borrower’s residence and meet all of the needs of the veteran and his or her family. These include single-family homes, condo projects that are on the VA-approved list, townhouses and multi-family homes up to four units. Manufactured homes can also be guaranteed if they are fixed to a permanent foundation, but it may be harder to find a lender willing to approve a loan for modular homes. There are other types of properties that may or may not be approved depending on the circumstance, but suffice it to say it must be a suitable residence, and will also be subject to the VA appraisal, which will determine the fair value of the home as well as its suitability for the veteran purchasing the home.

The third point is closely related to property eligibility, and that is Owner Occupancy. The VA has a very strict residency requirement, which mandates that the borrower must certify that they intend to occupy the property being purchased as their primary residence. This, of course, only applies to homes being purchased with a veteran’s VA loan benefits. Typically, a VA borrower must occupy the home within 60 days of purchase, though active service members currently deployed can receive an extension of up to 12 months to occupy the home. Previously, only the spouse of the VA-eligible borrower could satisfy the occupancy requirement in the stead of the the borrower, but new changes make it possible for dependent children to satisfy it in some cases. Regardless, primary occupancy must be established in some way.

The last point is the one that most borrowers focus on: Income and Credit. In order to be approved for a VA loan, the borrower and any co-signers need to have sufficient income and credit. This approval varies from lender to lender and is much like the conventional loan approval process. The VA does not set a minimum credit score, but does have a maximum debt-to-income ratio that borrowers cannot exceed. This maximum is 41% and enough residual income to cover living expenses typical of the area in which they live. Credit score requirements are left to the individual lender, as are the requirements for income and employment verification, to a degree.

Expecting PCS Orders? What About Your VA Loan?

One of the trademark attributes of military service is getting new PCS orders. Sometimes PCS orders come at the best time, and sometimes they come at the worst time. Many active service members worry about getting a VA loan where they are currently stationed because they will likely only be there between two to three years. It’s true that military service members and their families move more than twice as much as civilian families do. So should anticipating PCS orders within the next few years stop you from getting a VA loan to purchase a home where you’re currently living? Hopefully the information we provide will help you make the best decision for your family.

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One of the biggest concerns facing service members considering getting a VA loan and to service members who have used their VA loan benefits and received PCS orders is having to scramble and rush to sell their current home in time to use their VA loan benefits in their new assigned post. This concern stems from correct knowledge that a VA borrower is only eligible to get a loan on the home they use as their primary residence, and that VA loans are typically restricted to one home at a time (it’s hard to use two different homes as ‘primary’ residences). However, there are certain special circumstances where a borrower can have two VA loans open at the same time. One of these circumstances is, you guessed it, when an active service member is needing to move to comply with PCS orders. The VA has this exception to the rule because they want service members to have full access to their benefits, but recognize that military life itself sometimes makes it difficult to do so.

One of the most beautiful things about this exception, is that it does not matter why the service member wants to keep the home. If they are moving because of PCS orders, the residency requirement is waived and the borrower can keep the house for whatever reason they see fit. Many service members use this as a way to earn rental income off their old house. More typically, the borrower may wish to wait until market conditions are better to list the house at a higher price, or to immediately list their house at a slightly higher price that might take more time to sell. Still others, especially those close to finishing their time in the military, might wish to keep the house because they’re planning on moving there after discharge. Remember, though, that just because VA rules don’t prevent a borrower from keeping their old home after PCS orders, that doesn’t mean there aren’t qualifications for a borrower to be able to use their VA loan benefits a second time.

In order to be able to use their VA benefits to purchase a new home at their new station, they need to have both sufficient entitlement and the ability to pay for both loans. For many young military families, those two conditions constitute an obstacle that is impossible to overcome. Since the VA has a rule that a borrower’s debt-to-income ratio cannot be higher than 41%, in order to handle two mortgages the borrower’s family would need very impressive income. Additionally, the borrower must have enough entitlement remaining in their VA loan account to cover the cost of the new home. This is not too much of a problem when talking about smaller, low-cost homes, but a borrower will likely not be able to use their VA loan for two sizable homes.

In short, a veteran’s full entitlement is $417,000 in most areas, though some higher-cost areas have higher limits. In other words, if a borrower buys a home for $200,000, then gets PCS orders to somewhere else, that borrower could potentially purchase another home for up to $217,000. If the service member is sent to a higher-cost area, that entitlement could increase. When opening a second VA loan, a borrower is subject to all of the same hoops to jump through as the first time; the borrower’s ability to pay the loan back is evaluated, as well as his or her credit and debt-to-income ratio, and a decision is made to determine whether the borrower can afford a second VA loan.

While it doesn’t work for every situation, it’s worth finding out if you could be taking advantages of the VA loan benefits program – both before and after your next PCS orders.

Questions On Restoring VA Entitlement Answered

There are, of course, many common questions about the VA loan program that could be addressed, but there are many questions that directly involve restoring VA entitlement after the initial use. These questions often have different contexts, but involve basically the same question: how? One of the most common involves a borrower selling his or her house that is using their VA entitlement and buying another one and would like to use their VA entitlement for the new home. They are wondering what the turnaround time between the sale of their old home to restoration of their entitlement is, and how to speed up the process if they can. This is a somewhat complicated question, and therefore has a somewhat complicated answer.

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The rules to getting your VA entitlement restored aren’t too complicated, but they are very specific. The Pamphlet lists the circumstances that entitlement can be restored, which are when the property for which the original entitlement was used for has been sold, and the other is if the veteran refinances to a non-VA loan on the original loan. In both cases, the VA entitlement will be restored, though the Pamphlet makes a point of mentioning that if the veteran intends to use the entitlement again, he or she must still meet all of the occupancy, income, and credit requirements of the program. From the Pamphlet:

“Entitlement previously used in connection with a VA home loan may be restored under certain circumstances. Once restored, it can be used again for another VA loan. Restoration of previously used entitlement is possible if

● the property which secured the VA-guaranteed loan has been sold, and the loan has been paid in full, or
● an eligible veteran-transferee has agreed to assume the outstanding balance on a VA loan and substitute his or her entitlement for the same amount originally used on the loan. The assuming veteran must also meet occupancy, income, and credit requirements of the law.”

Now, the rules above obviously do not cover every portion of the original question. In regards to turnaround times and ways for borrowers to speed up the process of getting a response, the only thing to do is for the borrower to contact their loan officer and the VA Regional Loan Center that covers their area. Between these two sources, assistance can be provided and the borrower will learn what they can do in their situation to speed up the process. It seems prudent at this point to mention that restoration of VA entitlement is not automatic; it requires action on the part of the borrower. The borrower must apply for restoration, and that is a process your loan officer can best assist you with.

The VA also provides a couple of other scenarios in which a veteran can get restoration of entitlement, “a veteran may obtain restoration of the entitlement used on a prior VA loan under any of the following circumstances:

● the prior VA loan has been paid in full and the veteran has made application for a refinance loan to be secured by the same property which secured the prior VA loan. This includes refinancing situations in which the prior loan will be paid off at closing from a VA refinancing loan on the same property,
OR

● the prior VA loan has been paid in full, but the veteran has not disposed of the property securing the loan. The veteran may obtain restoration of the entitlement used on the prior loan in order to purchase a different property, one time only. Once such restoration is effected, the veteran’s COE will indicate the one-time restoration. It will also advise that any future restoration will require disposal of all property obtained with a VA loan.”

Borrowers who are hoping to reuse their VA loan benefits must do so in accordance with the above policies and make sure they are proactive about applying for restoration. There’s only so much the borrower can do in regards to speeding up the process, but the things you can

How to Prepare to Get a VA Loan

It is often said that preparation for a VA loan needs to begin very early, as much as two years before you actually want to take the loan out. It has been in these articles more times than I would care to count, but what exactly does proper preparation for a VA loan entail? What do lenders mean when they say to get everything in order before applying for the loan? So for all you first-time buyers out there who are looking at all the information you can get on VA loans and want to know exactly what you need to do, I’m going to throw some verbs at you that you can immediately take action on. Some of these things are more complicated than just a single word, so make sure to read through the entire article to understand how these things work together and why they’re all important.

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Figure out and plan a budget. Hopefully you already have a good grasp of how much income you bring in and how much of it you spend, but if not, then get a good grasp on it! If you have no idea how much it’s possible for you to be saving each month, it’s pretty difficult to know what price range of home you should be looking for. For example, many people would say that saving $50/week is pretty impressive. So let’s assume you make that your goal: save $50/week, or around $200/month. Now let’s assume you’re saving for a 10% down payment on a $200,000 home, so you’re saving up $20,000. At a rate of $200/month, it will take 100 months, or 8 years and 4 months to save up that much money. I’m going to go out on a limb here and say you want to buy a home sooner than that. Looks like saving $50/week isn’t going to cut it.

As an extension of the previous paragraph, you want to set a good goal, and know the price range of the home you are hoping to buy. You don’t have to have a specific home picked out yet, but you should know if you’re looking between $200-$300k, or $400-$500k, or something else. If you don’t know how much you’re shooting for, you don’t know how much you need to save, and if you don’t know how much you need to save, you can’t make plans to save enough. Find a free mortgage calculator that tells you your monthly payment and the total interest you’ll pay over the duration of the loan. This is part of educating yourself about the mortgage process. The lender will do their best to make sure you understand their commitment, but in the end it is (and should be) your responsibility to make sure you’re making a good choice for yourself and your family. You can’t drive without learning how first, and the same applies to buying a house.

Check your credit report and make sure it’s accurate. They usually are, with frightening accuracy, but knowing not only that it’s accurate but what score they give you is a very important part of getting ready for your home loan. Checking your credit report will allow you to make sure there are no signs of identity theft, and to see where you can improve. Depending on your score and the report backing it, it may be advantageous to buy a car that you need to make payments on to have that successful, flawless payment record on the report to push your score up. You’ll also want to get your credit card debt under control, and preferably completely paid off before you try to apply for a VA loan. The report only goes back 12 months, so if you’ve been late on a payment, you’ll want to wait at least a year after it before you apply for a VA loan.

If you are self-employed or a small business owner, you’ll want to make sure you have all the information they’ll want on paper. They’ll want proof of your income from the business, so if you’re paying yourself with partner distributions you need to provide a Pay Advice or something similar that shows the amount of the last pay period and the year-to-date amounts, as well as any taxes or anything paid on those amounts already. You’ll also want crisp, clean financial statements for every quarter for the last two years (they may not want all of them, but they might). Have those financials prepared by an accountant, because if you don’t, chances are the lender will ask you to go back and have an accountant do them.

Those are really the important things to do in preparing for applying for a VA loan. These are just starting points, and while this article is fairly short, completely fulfilling each step within will take some time.

Why Some VA Loan Purchases Aren’t Available In Your Area

It is often a source of frustration for a potential VA loan borrower to find out that the VA approves loans of a certain type (it’s ok, for example, for a VA borrower to use their entitlement to purchase a mobile home or a plot of land, and it’s ok for a borrower to get a construction loan with their VA benefits), only to be told by every VA-approved lender they talk to that “they don’t do that.” The borrower is often confused at how the VA can allow something but lenders facilitating the VA loan will not. A common example of this is the borrower who wants to purchase a mobile home. The VA allows loans to be made to purchase a mobile home, but many lenders do not offer loans for those. The same is true of construction loans and modular homes.

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So what’s going on? Why are these lenders refusing to offer these types of VA loans? The first reason is market conditions. Currently, it may be difficult to find lenders who offer VA loans for mobile and modular homes; in other words, the amount of lenders that are willing to offer those types of loans is quite small. These things change over time, however. It wasn’t always true that a mobile home VA loan was difficult to get. This is because market conditions change over time. Currently, there are higher risks associated with mobile home loans, and the risk is high enough and the complications aplenty enough that most lenders do not find it worth it to finance the purchase of mobile homes and modular homes. This is also often the case with construction loans, perhaps even more so.

Potential borrowers point to multiple sources (sometimes the lender’s own website) to support their stance that those types of loans are allowed. Many sources quote the VA stance on it which allows for borrowers to choose to use their money to purchase a mobile home, modular home, and/or a plot of land. The VA will even allow a borrower to build a new home with their VA loan benefits. Technically, this is all true. Technically, the VA allows all of those types of loans, and that is firmly established in the VA Lender’s Handbook, which the go-to resource for all policy related to VA loans. But while a borrower is technically able to apply for a VA loan for those purposes and have it approved by the VA as long as the borrower is credit-worthy, the lender is technically allowed to refuse to approve the loan.

Lenders that join the VA lending program do so voluntarily, and are considered “participating lenders”. Any lender that becomes a VA lender still has the freedom to choose which types of VA loans they will approve and which ones they will not. The VA is not able to force lenders to accept any and all types of VA loans in order to be a VA-approved lender. If they tried to do that, they would have so few VA-approved lenders that they would be unable to meet the demand of veterans looking to take advantage of their benefits and likely the entire VA loan program would eventually disappear. While this may be frustrating to some borrowers, if you look at how much money the lenders put on the line for every single loan, it makes complete and total sense why they should be the ones with the final word on where they put their money and who they risk hundreds of thousands of dollars on.

So while there are several options that the VA does permit but that a borrower will have a very difficult time finding, there are many more options that are currently widely offered by most VA-approved lenders, and the ones that are not will probably not be that way forever. As the housing market fluctuates, so do the types of VA loans that will be hard to find. Right now, the market isn’t great in regards to loans for mobile homes and construction, so in turn it’s difficult to find a VA lender for those types of loans. There are currently many options for those looking to use their VA loan benefits. VA-eligible borrowers can get VA loans on condos, townhomes, regular houses from all price ranges, multi-unit properties (like a twin home or four-unit apartment building) and other types of homes. If a VA borrower is not able to get exactly the VA loan he or she wants, there are still plenty of options and the borrower can always get a loan on what they want the conventional way if that is preferred.

What Are VA Loan Discount Points and Why Do They Matter?

There aren’t very many ways you can make a loan cheaper than what is offered to you by the lender, so it’s best to use the few weapons you have to their highest effect. First, you have to know how the loan terms are calculated in the first place. Obviously, the loan amount is typically determined by the cost of the home. In the case of VA loans, the loan amount is determined by what the VA appraiser deems to be the reasonable sale price of the home, and that number is about as flexible as a brick, maybe a little less. There’s not much you can do about the loan amount, but the interest rate is a place where keeping your wits about you is a smart plan. As a borrower, when you’re looking to commit to paying off a VA mortgage for the next 30 years, the burden will fall upon you to negotiate the interest rate with the lender.

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Now, there are certainly a number of things that prevent the most ideal interest rate from being within your grasp, some of which have nothing to do with the lender. Your credit score in a large way determines what interest rates you’ll be eligible for, and there’s not much good that negotiating will do. Your loan repayment history and even that day’s interest rate sheet play major roles in determining how much the lender will budge on the interest rate. So with all that in mind, what options are available to you? What tool can you pull out of your tool belt to help save you a few thousand dollars over the next 30 years? Two words: discount points. They certainly have a fantastic name; a name that reeks of money-saving implications and sounds very desirous. But what are discount points, and how do they work? How do you use them?

Short answer: you buy them. The VA Lender’s Handbook, also known to those in the know as VA Pamphlet 26-7, discusses discount points a bit. It explains that the borrower can pay for discount points, and that the borrower and lender agree on the amount, and may be based on the loan principal amount after the funding fee is added to it, if the funding fee is being financed. From the Handbook: “Veterans may pay reasonable discount points on VA-guaranteed loans
. The amount of discount points is whatever the borrower and lender agree upon. Discount points can be based on the principal amount of the loan after adding the VA funding fee, if the funding fee will be paid from loan proceeds.”

Discount points are fairly simple. Discount points generally cost 1% of the loan principal (so when the VA says they can be based on the principal after the funding fee is added on, that actually makes them more expensive for you), and drop the interest rate by between 1/8 of a percent and 1/4 of a percent, so it would take at least four discount points to lower an interest rate by a full percent (from 5% to 4%). Buying discount points in exchange for a lower interest rate can be a really good idea if you’re confident you’ll be paying the loan down through to the end instead of selling, because even 1/2 of a percentage point can make a huge difference over a 30-year period.

Discount points are usually paid out-of-pocket, because otherwise it doesn’t make a whole lot of sense for the lender (so…instead of getting $15,000 extra dollars over the next 15 years, you’re offering me $6,000 over the next 15 years…um, no, thanks.) But the VA does allow for discount points to be included in the loan amount in some circumstances. According to the VA, the loan has to be a type of refinance, and depending on the type of refinance, a certain amount of discount points can be rolled into the loan, and the rest needs to be paid out of pocket. From the VA: “Discount points may be rolled into the loan only in the case of refinancing loans, subject to the following limitations:

INTEREST RATE REDUCTION REFINANCING LOANS

 

A maximum of two discount points can be rolled into the loan.

If the borrower pays more than two points, the remainder must be paid in cash.

 

REFINANCING OF CONSTRUCTION LOANS, ETC.

 

Loans to refinance are:

 

• a construction loan,

• an installment land sales contract, or

• a loan assumed by the veteran at an interest rate higher than that for the proposed refinancing loan

 

Any reasonable amount of discount points may be rolled into the loan as long as the sum of the outstanding balance of the loan plus allowable closing costs and discount points does not exceed the VA reasonable value.”

How VA Loan Eligibility Works for Guard and Reserve Members

Eligibility is different for members of the National Guard and the Reserve than it is for full-time servicemembers or veterans. The good news, though, is that members of the National Guard are still eligible for VA loan benefits, there are just different requirements. For a Guard or Reservist looking to use VA loan benefits, it’s a good idea to become familiar with the options available to you as well as the rules and restrictions to using your VA loan benefits. The VA rules explain exactly what the minimum service requirements are for Guards and Reservists and when you can begin using your benefits. The VA loan benefits do not kick in immediately upon joining up or finishing boot camp. The soldier must meet the minimum service requirements as well as several other requirements in order to be eligible for a VA-guaranteed loan.

couple back house (2) These requirements are very different from the requirements for Guards and Reservists. However, they are in the same spirit, which is making sure that those who qualify for the VA loan benefits are those who have contributed to and sacrificed for their country. For a soldier in the Guard or Reserves, the VA expects them to serve for 6 years in order to qualify for VA loan benefits. If the soldier is still serving after 6 years, he or she is fully able to apply for their Certificate of Eligibility, but if the soldier has been discharged or is otherwise no longer serving, there are other requirements.

First, the soldier must have been honorably discharged. Any less-than-honorable discharges will automatically disqualify a veteran of the Guard or Reserve from getting any VA loan benefits. The soldier may also have been placed on the retired list or transferred to the Standby Reserve or Ready Reserve and had their service in the Selected Reserve characterized as honorable. The VA considers it important that the veteran left the Guard or Reserve in good standing in order to qualify for VA loan benefits. The VA has some exceptions in place that cover those who were discharged prior to their six-year mark depending on why they were discharged. For example, if a veteran was discharged from the Guard or Reserve due to circumstances beyond their control, they can apply for eligibility in spite of not having served long enough. From the official VA website: “If you do not meet the minimum service requirements, you may still be eligible if you were discharged due to (1) hardship, (2) the convenience of the government, (3) reduction-in-force, (4) certain medical conditions, or (5) a service-connected disability.”

In more recent days, the “reduction-in-force” qualifier for being discharged can crop up more and more often as budget cuts and many other factors both political and economical have caused the entire military and all of its branches to reduce their forces. For those Guards or Reservists discharged for this reason, they can still apply for eligibility for the VA loan program. While the military will sometimes employ voluntary means of reducing force such as voluntary early retirement and incentives for voluntary separation, there are often only so many ‘voluntary’ methods the military can use to reduce their force, and many servicemembers find themselves being discharged early due to reduction in force.

Exactly what qualifies as “hardship” is foggy at best, but should be explicitly stated in your discharge papers as the reason for discharge. The “convenience of the government” is exactly as it sounds. The really good news is that those who are discharged early due to medical conditions or a service-connected disability can still be eligible for VA loan benefits. If you’re unsure if you can qualify for the VA loan program, contact the VA or a VA-approved lender and give them your information. If you were discharged before your 6-year mark for any of the above reasons, chances are you can qualify.

Considering the Age of a Home for a VA Loan

VA loans are subject to a lot of confusion and misconceptions. Many of them surround the VA appraisal, which, unfortunately, does a great job at creating confusion. Most VA-approved lenders, however, are very good at explaining the VA appraisal, and often a borrower simply needs to ask in order to get their questions answered. One of the things that borrowers want to know in regards to the VA appraisal or VA loans in general, is whether there is an age limit on the homes they are allowed to buy. Does the home have to be built after a certain year in order for the VA to be willing to guarantee the loan? If so, what is that year? What are the VA standards in this area and are there exceptions to those standards?

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The short answer to whether the VA has established an age limit on homes is no. As with every short answer, however, there is a ‘but’, followed by a much longer answer. Nowhere in the VA lender’s guide or rule book does it specifically mention the age of the home. Regardless of age, however, the home does have to meet the VA’s minimum property requirements, as well as all state and local building codes, which many older homes may not. The requirement most directly associated with age, however, is the property’s “remaining economic life”. While a home’s remaining economic life declines over time (alas the nature of life), it does not necessarily mean that an old home has little remaining economic life, so even with this requirement, there is no real age limit that can
be put on a home. A home built 100 years ago that was built well and properly maintained and updated as time went on can still have enough remaining economic life to be approved for a VA loan.

The rules for remaining economic life, at least for a home to be approved by the VA, is very utilitarian in nature. The home must have an estimated economic life that is at least as long as the terms of the mortgage (so 15 or 30 years). Quick definition on economic life for those unfamiliar with the term: how long the home is considered ‘salable’. In other words, when the home is no longer salable on the real estate market, its economic life is considered over. Additionally, the estimate on the remaining economic life has to be supported and not the result of a shrug of the shoulders and “it looks fine to me”. Directly from VA Pamphlet 26-7: “For VA Loan Guaranty purposes, the remaining economic life of the security must be at least as long as the loan repayment term. A short remaining economic life estimate must be supportable and not arbitrarily established. This is to avoid depriving veterans of the home of their choice in an area where they can afford to live.”

Estimating the remaining economic life is the job of – you guessed it – the VA appraiser. The appraiser looks at a number of variables, including the relationship between the property and the area it is in (is this a drug war zone?). The appraiser also looks at other homes in the area in direct comparison to the one being appraised, the build of the home from a functionality perspective, and the workmanship of the home, as well as how well it’s been maintained and whether it’s been kept in good repair. As mentioned above, the actual age of the home can certainly be a factor; in fact, it can be a defining factor if over the age of the home it has not been taken good care of, but there is nothing specifically that prohibits a home from being a certain age. Directly from Pamphlet 26-7:

“In estimating remaining economic life, the appraiser must consider

  • the relationship between the property and the economic stability of the block, neighborhood, and community
  • comparisons with homes in the same or similar areas
  • the need for a home of the particular type being appraised
  • the architectural design, style, and utility from a functional point of view
  • the workmanship and durability of the construction, its physical condition and probable cost of maintenance and/or repair
  • the extent to which other homes in the area are kept in repair, and in areas where rehabilitation and code enforcement are operating or under consideration, their expected results in improving the neighborhood for residential use.”

 

VA Home Loan Milestones

You have to wonder how many times in life we pass up tremendous opportunities to progress for timidity. Timidity is akin to fear—we tend to fear the unknown. How many times are we robbed of significant advancement because we lack understanding or because we hesitate for the unknown?

 

Using your Veterans or military service entitlement, you have the chance to get into your own home. To most people, the task of getting into a home seems complex, stressful, and distant. It will surprise you to know that the process of qualifying for a VA home loan is simple and direct.

 

The truth is, getting into your home is a huge event.  Your journey should be one of hope and happiness. The experts at LowVARates not only know how to keep focus on the joy of the journey, they have the experience to guide you through the process to its completion.

 

Keeping it simple, then, here are the steps to the VA Loan Process:

  1. Prequalify with LowVARates.

The security of any adventure is in knowing you have a trusted partner. Finding experienced VA loan specialists is half the battle. The collective experience of the loan specialists at LowVARates is a decided advantage on your journey to home ownership. Don’t allow your inexperience or doubt be a factor here. We specialize in helping you find a way.

Start by giving us a call. Our loan specialists know exactly the information needed to qualify for a home.  If the time is not presently right, we can tell you the steps to take so that you will qualify.

  1. Getting Pre-approved.

LowVARates will take your personal information, and with professional precision determine if you can qualify for a veterans mortgage loan.  We have a long history of helping homeowners qualify for their home loan. You can be confident that LowVARates will have your loan package filled out and representing you to your greatest advantage.

The VA has specific requirements for you to meet. So expect to do your work.  We can help tee it up for you, but the swing is still yours to take.

Here are some of the documents you will need to provide:

  • Current pay stubs.
  • Tax returns and W2s
  • Employment history
  • Bank/Investment statements
  • Evidence of real estate assets

(*Here is a slightly different list of documents for streamline refinance loans.)

  1. Find Your Home.

You might have your home already picked out. Or, you might not know where to even start. LowVARates can help here as well, helping you find a reputable realtor who will listen to you and help you locate the property and neighborhood you want to live in.

  1. Make an Offer.

When you find that perfect home, you will make an offer on the home and negotiate a contract with the seller. Because we understand the VA home loan market and process, we can help you arrange the contract so you do not need any money down, if that is how you want to proceed.

Because VA loans do not require mortgage insurance, you can qualify for more home on your budget. We will help you structure the details to your greatest possible advantage.

  1. Processing and Closing.

The VA requires homes to be ready for move in.  The burden to have the home move-in ready lies with the seller. The person that determines move-in ready is the appraiser.  The appraiser’s job is to make sure the home is to verify the value of the home and to make sure it is in good repair. The appraisal protects you and protects your lender.

Once you are under contract to purchase your home, the loan documentation goes to an underwriter for review.  The underwriter verifies financial information and all other required documentation; he also ensures the loan meets VA requirements.

When your loan is approved, a closing date is scheduled, where you will review all information and sign the required documents. This will finalize your VA home loan and you can then take ownership. What a banner day!

Changes Made in 2012 in Regards to Surviving Spouses

2012 was a big year for changes to the VA loan program, mostly thanks to the passing of Public Law 112-154, or the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012. The Act brought several major changes to the VA loan program, one in regards to the occupancy requirement, where now a dependent child can fulfill the occupancy requirement on behalf of the veteran borrower, and another in regards to funding fee waivers, which now allows for medical records while on active duty to be used by the VA to verify what an active servicemember’s disability status will be upon discharge. Since an exemption to the funding fee is dependent on the servicemember’s disability status, the new verification methods allow for more veterans to be exempt from the funding fee.

But another big change has more to do with surviving spouses of veterans than the veterans themselves. A “surviving spouse” in the context of VA loans means specifically a spouse whose veteran partner passed away during service or due to a service-related disability. The Act changes VA policy in regards to surviving spouses in that it expands VA loan options for certain surviving spouses. Essentially, the change allows for surviving spouses of disabled veterans whose death was not directly caused by their disability to have VA loan benefit eligibility. From the VA Circular 26-12-9: “Public Law 112-154 expands home loan benefit eligibility to surviving spouses of certain totally-disabled Veterans. Now included as eligible are surviving spouses of certain Veterans who were continuously rated for a service-connected disability, but whose disability may not have been the cause of death.”

Now, this change does not apply to any spouse whose veteran partner was disabled. The veteran must fulfill one or more of four requirements in order for their spouse to be considered. This is only in the case that the veteran’s death was not caused by his or her service-related disability. The first option is if the veteran was either receiving (or would have been receiving if it hadn’t been for retirement pay) disability compensation for a service-connected disability rated totally disabling. This is a requirement because the change to expand VA loan benefits was made to assist surviving spouses who are likely struggling financially to keep their heads above water – if the veteran spouse had only a minor disability and wasn’t relying heavily on their disability compensation to make ends meet, the surviving spouse should, in theory, be better off upon the death of the veteran than the spouse of a totally disabled veteran.

The second option is that the veteran spouse had a rating of totally disabled for at least 10 years leading up to his or her death. This option, as well as the third option, exist to provide a degree of flexibility to help cover different situations with the same level of need. The third option is that the veteran was rated as totally disabled continuously for at least 5 years from their discharge date. Some disabilities become worse with time and a veteran won’t be considered totally disabled until the disability has become worse, while other disabilities heal and improve over time and a veteran might go from totally disabled to only partially disabled.

The last option is for a veteran who was a former prisoner of war and who died after September 30th, 1999, and was rated totally disabled for at least a year immediately leading up to his or her death. For all these cases, surviving spouses are exempt from paying the VA funding fee. Additionally, for a surviving spouse who is also VA-eligible, they are not limited to only one of the entitlement amounts, but can use both. From the VA Circular: “These newly eligible surviving spouses are not required to pay a funding fee. Additionally, a surviving spouse who is newly eligible under Section 202 of P.L. 112-154, and who also would be eligible for home loan guaranty benefits under his/her own entitlement, is not limited to only one of the various entitlements available.”

Any additional questions can be taken to a VA-approved lender or directly to the VA. Contact your VA Regional Loan Center or find an approved lender in your area to consult.

Limits on VA Loan Eligibility – What About Age?

It is interesting that there is so much confusion and misunderstanding surrounding eligibility for VA loans. Aside from confusion about where the money being lent in a VA loan comes from, misconceptions about VA loan eligibility are probably the most prominent of all the myths surrounding the VA loan benefit. Being clear on who is eligible for VA loans and why is obviously a very important thing for veterans or those directly related or married to a veteran. While eligibility is pretty cut-and-dry, some people who think they might not be eligible actually are, while others may be surprised to find out that they actually are not eligible for VA loan benefits.

In order for a veteran to qualify, the first requirement they must meet is their time in service requirement. This varies from branch to branch, most particularly from full-time service branches to part-time (National Guard, Reserve). The second requirement that a veteran must meet is the discharge requirement (if they have already received their discharge). Veterans with a less-than-honorable discharge are not automatically eligible for the VA loan benefit, but can take steps to be awarded eligibility. A lot of servicemembers use their VA benefits as soon as they can while still very young, while a fair amount also wait until later in life to take on the burden on finances and time that owning a home can be.

For a veteran who uses his or her VA loan benefits early, and pays off their home before age 50, it might make sense to want to purchase another home. It also makes sense that they would want to take advantage of their VA loan benefits again. A veteran in this situation (or a veteran who opted not to utilize his or her VA loan benefits until a later age) will probably wonder if they are still eligible to use the benefits. After all, it’s possible that there is a time limit on the benefits or an age limit; perhaps you have to use the benefit within 10 years of separation or before age 40, or something like that. In this area, the VA is very clear with their rules, making it easy to understand.

It is no issue for a borrower to re-use their VA eligibility a second, or even a third time. For a borrower that has fully paid off their previous home, this is a very simple process involving an application for a restoration of VA loan eligibility. For someone selling a house bought with a VA loan and hoping to buy another house with their VA benefits (a typical moving scenario) it can get more complicated, but we won’t go into detail on that here. For the borrower who has already paid off their home, they need to furnish proof that the original VA loan has been completely paid off.

One thing that might surprise a borrower is that they must sell the property they’ve paid off before their VA eligibility can be restored. While this at first seems odd, it makes sense after thinking about it; the purpose of the VA loan program is to assist the veteran in purchasing suitable housing – for a primary living residence. If the veteran already owns a home and isn’t planning on selling it, how does the VA know that the benefit is being used for its intended purpose? There are cases where the VA might approve a one-time exception to selling the home before allowing a new VA loan to be made to the borrower.

Either way, whether the house is sold or is still owned by the borrower, the VA still requires proof that the original loan is taken care of before approving a second loan. Getting eligibility restored is the veteran’s first step in getting a second loan, and must take place before a loan can be approved. The best way to go through this process is to involve your loan officer and he or she can walk you through it all step by step.

With all that cleared up, we can address whether there actually is a time or age limit on a veteran using their VA loan benefit. The answer is no, there is no maximum amount of time or age that a veteran can use the benefits. The only requirements are rather common sense and common across any legal contracts: the borrower must be of legal age and mentally competent enough to sign a legally binding contract. The requirements for legal age and mental competency vary state by state and your loan officer will be better able to provide guidance if this is a concern.

A VA Loan After the Borrower Has Died

There are many things that are misunderstood about VA home loans. Myths, fables, and misconceptions abound when it comes to the VA home loan benefit program. Unfortunately, these myths all surround points that really need to be well understood in order for a borrower to make the best decision regarding their VA loan. There are, of course, plenty of myths surrounding where the money for VA loans comes from. Many people mistakenly believe that the VA is the entity that is actually loaning the money to the VA borrower, when in fact they are simply guaranteeing, or insuring, that amount on behalf of the borrower to the lender they are borrowing money from. In this way, the lender has much less risk involved with the loan and can then offer the borrower a much better interest rate than they might otherwise be able to qualify for.

Another common misunderstanding is concerning what the fate of a VA loan is when a borrower dies. Considering that in the case of a short sale, the VA may step in and use the borrower’s VA loan benefit amount to make up the difference so the veteran doesn’t owe any money to the lender, it’s easy to understand why many might think that the VA does something similar when the borrower dies. However, that is not what the VA loan benefits are intended for, and a surviving spouse or offspring should not expect the VA loan benefits to cover any of the remaining balance on the VA home loan. With that in mind, let’s move on to clarify exactly what happens in the event of the death of a VA borrower.

The VA is pretty clear on their website, stating that in the event a VA borrower dies before the mortgage is paid off, that the spouse or co-borrower will need to continue making the payments. The borrower has the option of getting mortgage life insurance but that has nothing to do with the VA. From the VA website:  “The surviving spouse or other co-borrower must continue to make the payments. If there is no co-borrower, the loan becomes the obligation of the veteran’s estate. Mortgage life insurance is available but must be purchased from private insurance sources.” This is an important thing to keep in mind for a borrower and his or her spouse or co-borrower as they’re considering opening a loan, especially if the borrower’s health is less than ideal or likely to worsen soon.

So in many respects, a VA home loan is not any different from any other financial obligation that a deceased person has. In fact, it’s basically identical to a conventional mortgage in the event of the death of the borrower. When a person dies, it is normal for all of their debts, including credit cards, student loans, and a mortgage to become the responsibility of the surviving spouse or the veteran’s estate. In the case of a veteran passing away, it is essentially the same. While the spouse may be eligible for compensation from the VA for the death of the veteran, no amount will come specifically from the VA loan program with the intent to pay off the balance on the loan. This is obviously a very important thing for VA borrowers to be aware of in advance. Often, lender’s or other creditors will have policies in place to assist the surviving spouse, especially when the deceased was the primary income provider for the household, but that will take place independent of the VA.

Mortgage life insurance can be a wise option for a VA borrower, and may be worth exploring. Having mortgage life insurance is not a VA requirement and amounts to an entirely personal choice. A VA-eligible borrower can obtain a VA loan without mortgage life insurance if they choose, though a VA lender may recommend it to the borrower. In the end, the decision lies with the borrower, and the borrower should invest the necessary time and effort to making the best decision and choosing the best provider if they decide to get mortgage life insurance. Any questions can be answered by a VA-approved lender or by the Regional VA office.

The Recovery Period – After a Short Sale

To any person who has ever taken out a mortgage, the mere mention of the phrase ‘short sale’ is enough to cause a small shudder. A short sale is something no borrower ever wants to find themselves having to consider. Ideally, when a borrower sells their home, they sell it for everything they still owe on the home and some extra. This is possible even if they sell the home for the same amount they bought it for because they’ve been making payments on the home since they took out the mortgage. Any extra amount beyond what they still owe on the home goes into their pocket (new car, anyone?) A short sale is the exact opposite of this situation, where the borrower ends up in a situation in which they end up selling the house for less than they owe on it (sometimes significantly less). Rather than having extra  money in their pocket after the sale, they still have a large bill to pay in addition to whatever rent or mortgage they’re now paying on their new residence. Since that bill can be tens of thousands of dollars, a short sale is a shudder-worthy phrase.

The nice thing for VA loan borrowers is that a short sale is exactly the type of situation that makes having a VA guarantee so valuable that lenders will give you a better interest rate because of it. The VA loan version of a short sale is called a VA compromise sale, and consists of the VA making up the difference between the amount that the home sells for and the amount still owed on the home. Don’t get any ideas, though, because this still leaves the borrower with nothing extra in their pockets at the end of the transaction. In addition, after a short sale or compromise sale, your ability to get approved for a good mortgage drops significantly for quite some time. While a short sale doesn’t follow you for as long as a foreclosure, it still is pretty devastating to your credit. Short sales are often the final resort to avoid a foreclosure.

So what about after a short sale? Is there a waiting period before a borrower can be eligible to apply for a new VA loan? Indeed there is. The VA requires a two-year waiting period before a borrower that made a short sale can be eligible to apply for a new VA loan. This is assuming the delinquent amount has been paid off, but if it hasn’t, things get stickier, and it’s different if it was a short sale on a conventional loan or a compromise sale on a VA loan. Essentially, after two years, the VA will allow you to apply for a VA loan regardless, but on a short sale, if the amount hasn’t been paid off, it’s up to the lender to approve or disapprove a new loan. In the case of a VA compromise sale, where the VA paid money to a lender on behalf of the delinquent borrower, the VA will only guarantee the amount the borrower originally qualified for less the amount the VA paid on their behalf. In other words, if a borrower originally qualified for up to $400,000, and the VA had to make up $50,000 of their last mortgage, the borrower may only qualify for up to $350,000. The borrower can pay the VA back the money to restore the entitlement, but it usually doesn’t save the borrower enough money in the long run to justify the expense.

So when a lender is considering approving a new VA home loan for a borrower who still hasn’t paid off the difference from the short sale, they will usually have certain conditions that have to be met in order to approve it. Almost universally, the borrower would have had to maintain excellent credit after the short sale. The lender may require additional employment and income verification, and written documentation of the circumstances surrounding the short sale. Many lenders do not approve borrowers who still owe money on short sales even after the two year waiting period. Those lenders that do approve borrowers will certainly not offer the most advantageous interest rates. For this and many other reasons, it is essential that any person taking out a mortgage on a new home does everything in their power to meticulously plan for the next 15 or so years to minimize the risk that they will be forced into a short sale. Have enough in savings that you could make your mortgage payment for 6 months if you lost your job, keep improving your education so you can get a new job quickly if that happens. Know what your options are if money begins to get tight, and don’t get a mortgage that’s going to cost more than you can reasonably afford to pay.

Getting a VA Loan for a Condo – The Nuts and Bolts

Typically when someone thinks of buying a home, they picture in their minds a nice home with some landscape down a nice neighborhood street somewhere in Suburbia. But in many cases, a condo project will meet the needs and desires of a couple much more easily than a home. There are often many questions asked about condos and whether one can use their VA loan benefits to purchase a condo instead of a traditional home. The short answer to that question is yes, a VA mortgage can be used for more than just a ‘normal’ home. The long answer, where all the details are hashed out, comes below.

A VA loan can only be used for a condo if that condo is on the VA’s list of approved projects. If a condo project is not on the approved list, it can be submitted to be evaluated by the VA to see if it can be approved. There are a list of procedures that have to be followed in order to have a condo project approved by the VA. The first thing that needs to happen is the VA needs to receive from the lender (not the borrower, mind you, the lender) two things: a written request for VA approval, and a copy of the condo project’s organizational documents. However, there’s much more to the process than simply submitting documents and waiting for a response. A VA-approved lender will be familiar with the process, and this is one reason why it is the lender’s responsibility and not the borrower’s.

A lot of the differences between getting a loan for a home and getting a loan for a condo only make sense when taking into account the difference between a condo and a house themselves. The best way to describe the difference between a condo and a house is that a condo project is much like a very strict Homeowner’s Association or HOA, in that there are always restrictions on modifications you can make to the outside of your home, restrictions on pets, what age of people can live there, and other things that make it so only like-minded people will be your neighbors. A condo also typically does not have as much space as a home, and does not require you to maintain the outside of your property. Maintenance such as lawn-mowing and snow removal are covered by condo fees, and are arranged by the condo project board. With a home, you have as much control over the inside and outside of your property that the law permits.

After documentation on the condo project has been submitted to the VA, it must be reviewed to make sure that the project complies with all VA regulations. Before any lot or unit in the project can be purchased using a VA loan, the VA must approve the project as a whole. Even after approval, the VA might have a list of special conditions that must be met before the a VA loan closes on one of the units. These can be things like pre-sale requirements, or restrictions about the completion of the project. These can be major things that affect the construction of the condo project like VA requirements for common areas and other things. A condo project can absolutely be denied VA approval when there are deviations from the VA requirements, even when an “approval” has been received along with a list of special conditions.

A project can be denied based on a lot of factors, the most principal being incomplete documentation, either inaccurate or inconsistent information about the condo project, or anything that could suggest that the condo project board are not the most able or honest body. Ultimately, the VA is trying to determine whether the condo project really will  meet the needs of the veteran and that it is in good, responsible hands that will ably help the condo project to last as long as the veteran needs it to. Once denied, the only way the VA will re-evaluate it is if there is additional information presented that wasn’t brought up before. If the project has already been approved by the Department of Housing and Urban Development or the United States Department of Agriculture, then there is no further review required by the VA, and they will approve it as well.

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