The United States government offers many benefits program for veterans to take advantage of after their service. These benefits include various veteran housing loans that are provided by the Department of Veterans Affairs. They offer home financing options specifically for service members to assist them in reestablishing their civilian lives. This kind of assistance is very helpful for members struggling to maintain financial stability.
Although these veteran home loans are more accessible and have more favorable terms than traditional loans, service members must still meet certain requirements to obtain them. For instance, veterans are required to have a minimum credit score and income to qualify for certain loans. There are numerous home loan and financing options for veterans to take advantage so that they can construct, purchase, renovate or refinance a home. Read below to learn more about how to obtain a veteran home loan, meet the requirements and apply.
Types of VA Home Loans
Veterans are able to select from multiple loans when they are ready to buy, build or make changes to a home. There are two main types of home loans that veterans can choose from: direct VA loans and loans backed by the VA. There are different benefits attached to each loan type.
With a VA direct home loan, the Department of Veterans Affairs acts as the veteran’s mortgage lender instead of a bank or credit union. Service members work directly with VA representatives throughout the entire loan process. The VA manages both the application and loan payments. There is currently only one type of VA direct home loan option available for service members.
Conversely, a home load backed by the VA is not managed by the Department of Veterans Affairs. Interested service members apply for this type of loan through a private lender. Veterans Affairs guarantees the loan up to a certain amount. Meaning that if the home owner must foreclose, the VA will cover the lender’s losses up to a certain amount. These loans tend to have no down payment requirements and low rates due to the decreased financial risk perceived by lenders. There are three types of loans back by the VA that are offered to veterans.
Veterans Home Loan Eligibility
Service members must meet specific eligibility criteria to qualify for a home loan. Before supplying important financial information, veterans must show their lender a Certificate of Eligibility (COE). This document verifies a veteran’s service history in the military and duty status. Service members of the military, National Guard and reserve all have access to their COE. However, there are minimum service requirements that service members must have met before gaining access to their COE. These requirements depend on where and when a member served. Furthermore, applicants must meet their lender’s financial requirements to be eligible for a VA loan.
Veterans Housing Loan Options
Veteran can choose from four types of VA loans after receiving loan approval. Applicants should select the loan that best suits their financial situation. In addition, veterans should be aware of the additional requirements that accompany certain loans. Continue reading below to gain a better understanding of the benefits of each VA loan type.
A purchase loan is a type of VA-backed loan. It offers better terms and interest rates than traditional loans offered by private lenders and banks. Furthermore, VA-backed purchase loans can be acquired without a down payment. Moreover, veterans do not have to purchase private mortgage insurance for not supplying a down payment. Traditional loans do require applicants to buy mortgage insurance if they not supply at least a 20 percent down payment toward their home. However, service members cannot will not be permitted to buy a home using this loan unless they plan to live in it.
Veterans can benefit greatly from attaining a VA-backed purchase loan. It makes home buying accessible and affordable for many service members. However, veterans can do more than just purchase a home with the loan. They can:
- Purchase a condominium in an approved development.
- Build a home.
- Purchase and make improvements to a new home.
- Improve the energy efficiency of their current home.
An IRRRL–interest rate reduction refinance loan– is another type of VA-backed loan. It helps to reduce the cost of existing mortgage payments. With an IRRRL, a loan with an adjustable or variable interest rate can be set to a stable monthly payment plan. Veterans must visit a private lender and supply their Certificate of Eligibility to obtain this loan. Different lenders may offer different terms and fees so applicants should meet with several loan providers before deciding on the best option.
Cash-out Refinance Loan
Cash-out refinance loans are another way to adjust the terms of an existing home loan. This option allows service members to cash-out of an existing home equity or refinance a non-VA loan into a VA-backed home loan. This option can be beneficial for applicants who need funding for school or to pay off debts. They can utilize this refinance loan to cash out on their home’s equity. In addition, veterans who purchased a home prior to service can refinance it with a VA-backed loan. When applying, veterans must provide the following items to their lender:
- Certificate of Eligibility
- Proof of income in the form of W-2 forms
- Federal income tax from the previous two year
- Copies of their most recent pay stubs
Native American Direct Loan (NADL)
A Native American Direct Loan is the only type of direct loan available to veterans. However, service members, or their spouses, must be Native American. This loan allows recipients to purchase, build or renovate a home on Federal Trust Land. Veterans may also apply to refinance a current NADL to reduce their interest rates. With a Native America Direct Loan, veterans:
- Have no down payment.
- Do not need private mortgage insurance.
- Pay limited closing costs.
- Are able to receive another NADL in the future.
- Commit to a low interest 30-year fixed mortgage.
Just as with other VA home loans, applicants must meet income and credit score requirements to qualify. Service members must also provide their COE to their lender. Furthermore, a veteran’s tribal government is required to submit a Memorandum of Understanding to the Department of Veteran’s Affairs outlining the details of how the program will be managed.