Active duty service members and US military veterans give up a lot in service of our country. They train hard, move when they’re required to do so, and ensure that we are all protected. They also pitch in and help during natural disasters, providing assistance to those who need it. We owe them our gratitude.
Some may find it confusing to determine their eligibility and navigate the VA loan process. Here’s our guide to eligibility to help you understand the requirements and decide whether a VA home loan is right for you.
What is the VA?
The United States Department of Veterans Affairs is responsible for providing resources, care, and assistance to the men and women who serve our country and their families. These benefits include medical treatment, tuition assistance, job placement programs, and home loans.
The VA Home Loan program got its start as a part of the G.I. Bill, more formally known as the Servicemen’s Readjustment Act. It was passed toward the end of World War II in 1944. The bill included an array of services, including home loans.
In the decades since the VA home loan benefit started, Veterans Affairs has provided home loans to over 24 million active service members and veterans, as well as to their surviving spouses. The program has been designed to help people buy homes in small towns and cities as well as rural areas that the VA has identified as housing credit shortage areas. The money from a VA loan may be used to purchase a home or to repair or build a home. Refinancing is also available.
What Are the Eligibility Requirements for a VA Loan?
When the VA Home Loan program was first established, it placed limitations on which service members could take advantage of the program. It was not open to National Guard personnel or military reservists. That changed in 1992, when the program requirements were modified to allow both National Guard members and reservists with at least six years of honorable service to qualify.
To state it simply, VA home loans are available to the following groups:
- Active duty military members, including reservists and those in the National Guard
- Military veterans
- The surviving spouses of veterans provided they have not remarried
If you are in one of these groups, you must obtain a Certificate of Eligibility through the VA. The COE will be provided if you meet the requirements for length of service. You can review the full table of requirements here. Keep in mind that the service requirements are waived for any service member who received a discharge for a service-connected disability.
You may be able to qualify for a VA loan in some special circumstances outside of the requirements listed above. For example, if you were discharged due to hardship, you might still qualify. You can read more about exceptions and how to address them on this page.
How Does a VA Loan Differ from a Conventional Mortgage?
There are several ways in which a VA mortgage differs from a conventional loan. Here are the seven major differences:
- A VA loan has no down payment requirement. You can make a down payment if you choose to do so and can afford it, but it is not required.
- The VA guarantees a portion of the loan. The VA’s guarantee means that qualified borrowers can get a lower interest rate from a VA-approved lender than they might be able to get with a conventional mortgage.
- Veterans can obtain a VA loan if they have experienced bankruptcy or even a foreclosure on a VA or conventional mortgage.
- There is no borrowing limit for VA loans.
- There is no mortgage insurance requirement.
- There is no maximum income cap.
- The VA funding fee applies to VA loans and is based on the size and type of your loan. You can roll the funding fee into your loan and the VA waives the fee for those veterans who have service-connected disabilities and their surviving spouses and Purple Heart recipients, as well as for surviving spouses of service members who were killed in action.
Any qualified veteran or service member can use the VA loan benefit as many times as they want to provided that they have paid off the previous loan. The program has been designed to remove the most common obstacles that make it difficult for service members and veterans to achieve their dream of homeownership.
What Types of VA Loans Are Available?
The VA provides four different types of loans, as follows.
#1 Purchase Loan
With a VA purchase loan, you can buy a home in an approved area without making a down payment and with no mortgage insurance requirement.
#2 Interest Rate Reduction Refinance Loan (IRRRL)
If you already have a VA loan, you may be eligible to refinance to get a lower interest rate and lower monthly payment with the IRRRL program.
#3 Cash-Out Refinance Loans
Cash-out refinancing is available for both VA loans and non-VA loans; in other words, you can use the VA’s cash-out refinancing option to change a non-VA loan to a VA loan.
#4 Native American Direct Loan (NADL)
If you or your spouse is Native American, you can qualify for the NADL program to buy, build, or improve a home on federal trust land. Refinancing for NADL loans is also available. To qualify, your tribal government must have a Memorandum of Understanding (MOU) with the VA. The MOU specifies how the VA will operate on tribal lands.
What Documents Do You Need to Get a VA Loan?
There are several documents and other pieces of information you will need to apply for a VA home loan.
Certificate of Eligibility
We already mentioned the COE, and you will need to obtain one before you apply for a VA loan. The requirements vary depending on when and how you served. For example, only 90 days of service are required if you were in active combat, while the requirements are longer if you served during a time of peace.
For National Guard members and reservists who served prior to August 2, 1990, the requirement was six years of honorable service. After that date, the requirement was reduced to 90 days of active service. You can find the full list of requirements here.
Proof of Income
As we noted earlier, there is no maximum income cap to qualify for a VA mortgage. However, there are still income requirements that will be used to determine your eligibility.
In most cases, you must have verifiable, full-time income to qualify. The VA defines full-time income as coming from employment that requires you to work a minimum of 30 hours per week. If you are self-employed, then the verified income will come from your latest tax returns and you will need at least a two-year self-employment history. It will be easier to qualify if you can show year-over-year increases in your income.
If you’re not a full-time employee but work part-time, you may still be able to qualify for a VA loan. If you have a two-year history of consistent part-time employment that is likely to continue, the VA will sometimes make an exception.
We should also note that you can use other income to meet the requirement. The VA’s primary concern is that you can make your monthly mortgage payments. If you have income from any of the following sources, you can use it to qualify:
- Disability payments
- Pension funds
- Retirement funds
You will need to provide documentation of your receipt of any funds that you use to apply for your VA loan.
In addition to your COE and proof of income, you will need to provide the following documents to your lender:
- A government-issued photo ID
- Past two years of W-2s
- Past two years of tax returns
- Your most recent bank statements (checking, savings, & retirement accounts)
- Your most recent pay stubs
- Your VA disability awards letter, if applicable
- Your divorce decree, if applicable
- Your Social Security awards letter, if applicable
- Bankruptcy discharge letter, if applicable
- A copy of your discharge statement
You can ensure the smoothest possible underwriting and closing process if you gather all required documents ahead of time. That way, you’ll minimize the back-and-forth with your lender and allow them to streamline the process and get you approved as soon as possible.
What Are the Benefits of a VA Loan?
If you can meet the eligibility and income requirements, there are significant advantages to choosing a VA loan:
- There is no down payment requirement.
- There is no mortgage insurance requirement, even if you don’t make a down payment.
- The underwriting requirements are relaxed when compared to a conventional mortgage. (We should note that most lenders want to see a minimum credit score of 620, but the VA does not set a minimum.)
- There is neither a minimum income requirement nor a maximum income cap.
- The closing costs and fees for a VA loan are usually lower than they would be with a traditional mortgage.
In most cases, VA loans are easier to qualify for and less expensive than non-VA loans.
Do You Qualify for a VA Loan?
If you are an active duty military member or a veteran, you may qualify for a VA loan. At Leaders Credit Union, we’re proud to provide VA loans to qualified people in our West Tennessee community.
Do you want to buy a home using a VA loan? Click here to begin the application process today.