In the current mortgage environment, it can be quite difficult to get a home loan if you do not have a down payment. Due to the financial crisis, the credit crunch has made banks wary of lending to those who do not have any money in the pot. One of the exceptions to the requirement for a down payment when buying a home is the VA loan. If you are a veteran or active duty service member, you can get a home loan guaranteed by the Veterans Administration for no money down.
Advantages to a VA Loan
Being able to buy a home without a down payment is a big reason to pursue a VA loan, but there are other benefits to obtaining a VA home loan. Another advantage is easier qualification standards in regards to credit history, credit scores and income. Additionally, it is worth noting that you do not have to pay for private mortgage insurance as is the normal case when you get a zero-down home loan. This can help save you money each month.
Another advantage to the program is that you can use your VA loan entitlement multiple times throughout your life. For the most part, though, you have to have paid off the prior loan and no longer own the property in order to have your entitlement “restored.” The exception to this rule is if the mortgage on the first house is paid off, and the veteran still owns the property. In this case, it is possible to have the entitlement restored once for the purchase of a second home.
Eligibility for a VA Loan
It is important to realize that home loans are made by private lending institutions, and not by the government. However, in the case of a VA loan the Veterans Administration guarantees the loans. That way, if you default, the lender is not on the hook for the money; the government will pay the lender back. According to the U.S. Department of Veterans Affairs, there are three different categories of eligible borrowers under the VA home loan program:
Category A: Those who have served on active duty, including members of the active duty military, veterans and reservists and National Guard.
Category B: Reservists and National Guard members who have not served on active duty.
Category C: Surviving spouses of veterans who died either in service, or as a result of their military service.
You will need to obtain a certificate of eligibility before proceeding. For categories A and B, your mortgage lender can actually obtain the certificate as part of the loan application and approval process. Category C applicants typically require additional documentation – especially if the veteran in question died after service and the death has not yet been confirmed as service related.
Things to Know About Applying for a VA Loan
Applying for a VA loan can sometimes take longer than applying for a conventional loan, so you might want to consider this as you plan your home purchase. Another thing to realize is that in most cases there is a funding fee associated with the VA loan. The amount will vary according to several factors such as the type of veteran, down payment provided and whether this is the first-time use of a VA loan. You do not have to pay the funding fee up front; it can be rolled into the total loan amount. In certain cases, such as veterans who receive compensation for service-related disabilities, you might be exempt from the funding fee. Check with your lender or the VA to see if you qualify for an exemption.
As in other kinds of loans, to buy a home with a VA loan you will also have to go through a credit check, and your income will have to be deemed sufficient. An appraisal will have to be performed to ascertain whether or not the home really is worth its price, and in the case of VA home loans the appraisal has to be done by a VA-licensed appraiser. Also realize that the home you purchase with the help of the VA loan program needs to be your primary residence.
Photo: USArmyAfrica, Creative Commons 2.0
Miranda Marquit is a journalistically trained freelance writer and professional blogger. She contributes to several personal finance web sites, writing on topics such as budgeting, home loans and mortgages, and investing.
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