Veterans guide to home loans

Whether it’s your first home purchase or your third, special resources are exclusively available to help with your home buying process if you’re a veteran. Veterans also can take advantage of a VA loan, which saves money and makes it easier to achieve your homeownership dreams.

Loans supported by the government’s Veterans Affairs enable veterans to purchase a new home with no down payment. It’s also easier to secure financing because lenders know the VA backs its money. This also means that you will not have to make Private Mortgage Insurance (PMI) payments either, making your home that much more affordable.

“The VA Home Loan is a fantastic, but underused, veterans’ benefit,” Bill Kelly says. As a retired Coast Guard Captain, he currently serves his community as a loan consultant at Calibre Home Loans. “Earned through service to our country, eligible veterans and current active-duty members can purchase a home with no down payment, no mortgage insurance required and qualify for that loan with more flexible qualification requirements than other loan options, like a Conventional or FHA loan.”

With a VA loan, veterans can qualify with a lower income and a lower credit score than the average homebuyer.

“I describe the VA Home Loan as the most efficient way for a veteran to purchase or refinance a home,” continues Kelly. “This benefit does not expire and can be used more than once if the veteran meets those requirements.”

This is what you need to know about a VA-backed home loan.

VA home loan

Eligibility

Specific qualifications must be met in order to use a VA loan.  Some of these requirements include:

• Obtaining a Certificate of Eligibility (COE) by meeting the minimum service requirements
• Having the desired credit score based on your lender’s requirements
• Maintaining a satisfactory debt-to-income ratio to meet financial obligations

If you meet the requirements to obtain a COE,  your lender can request this form, or you can choose to mail in the online application.

Qualifications

Although qualifications are generally more lax for veterans, some eligibility requirements still apply.

Credit

Like any other loan, your credit score can help you receive a better interest rate. While the VA does not require a minimum credit score, each lender has the option to set its own requirements, so the higher your credit score, the better.

DTI

Your debt-to-income ratio (DTI) shows how much you owe compared to how much you make. You want to show lenders that you have enough income left over after your debts to pay your mortgage.

Property requirements

The VA has specific minimum requirements for VA loans that you must meet. You must have a VA-approved appraiser to confirm the structure and security of the property before you are approved for a loan.

Benefits

There are many reasons why VA loans are so popular for home buying.

“In theory, VA loans provide borrowers with more favorable terms than alternative financing options,” says Nishank Khanna, the CEO of Clarify Capital. “Qualifying for this type of loan tends to be easier because they’re government-backed, so banks take on less risk when lending. Since they’re easy to get and don’t require a down payment, many veterans opt to go this route when taking out a mortgage.”

No down payment required

Traditional loans typically require a 20% down payment, but that’s not the case with VA loans. Most VA loans do not require you to supply a down payment to buy a home. A more strategic use of a down payment savings could be to pay an extra mortgage payment every year with those funds, which would dramatically reduce the overall interest on the mortgage.

Low credit scores are permitted

VA loans also tend to be more forgiving of your credit score. If you have a lower credit score, you can likely still be approved for a VA loan.

No PMI payments

Normally with a traditional loan, you may be required to pay private mortgage insurance (PMI) payments on your loan. With VA loans, this coverage is not required.

Lower interest rates

VA loans are known for carrying lower interest rates than traditional loans. Because the U.S. government backs these loans, your loan poses less risk, so it usually has lower interest rates.

Benefit can be reused

A VA loan is not a one-time deal. This is a benefit that can be used multiple times throughout your life.

Save money with non-allowable fees

Non-allowable fees are fees that you do not have to pay when using a VA loan. This includes things like attorney and brokerage fees and prepayment penalties, in addition to any HUD or FHA inspection fees for buildings.

Certificate of Eligibility supporting documents

How to apply

Applying for a VA loan is a fairly straightforward process that can help you enjoy your new home with minimal roadblocks.

1. Apply for your Certificate of Eligibility (COE): After determining your eligibility for a VA loan, apply for your COE.
2. Review your finances: Be sure to review your credit report and examine your income and debts to determine what you can afford to pay for your new home
3. Pick a lender: You can use your VA loan to apply for a new home loan with your choice of a private bank, mortgage company or credit union. Consider what origination fees each lender charges before making a decision.
4.  Choose an agent: You will need a real estate agent to help you navigate the homebuying process. Be sure to consider what fees are associated with using each agent.
5. Begin shopping for a home: Once you have your finances ready and an agent at your side, you can begin to shop for the perfect home for your family.

Other VA loans and grants

Special VA loans and grants are available to qualifying veterans.

Disability housing grants

When you are living with a service-connected disability, you may face some challenges around the home on a daily basis. The VA will help you with the support you need to make your home more functional.

Different disability housing grants can be used to either buy or modify a home for your service-connected disabilities. These grants may be reused up to three times in your life. As long as you don’t move too frequently, you can get the disability support needed to make your home the right kind of home for you.

Unused portions of your annual grant also roll forward. That means if you do not use all of your allotted funds each year, you can use that extra money in future years.

Specially Adapted Housing (SAH) grant

The Specially Adapted Housing (SAH) grant is designed to provide you with extra financial support when you need to make changes to your home.

The maximum funding amount for the fiscal year of 2020 is $90,364.

To qualify, you must have one of these service-connected injuries:

• Loss of more than one limb
• Loss of use of more than one limb
• Loss or loss of use of a lower leg
• Blindness in both eyes (light perception only) and the loss or loss of use of a leg
• Specific kinds of severe burns
• Loss, or loss of use, of a lower extremity (foot or leg) after September 11, 2001, affecting balance and walking without the help of braces, crutches, canes or a wheelchair

Special Home Adaptation (SHA) grant

The Special Home Adaptation (SHA) grant is for a home you or your family member currently own or will buy. If you have a service-related disability, you can use this grant to pay for any necessary modifications to make your home more liveable. This applies to updating a new property and alterations to a home that you already own.

The maximum funding for an SHA grant is $18,074 for the 2020 fiscal year.

These service-connected disabilities are eligible for an SHA grant:

• Blindness in both eyes (20/200 visual acuity or less)
• Loss or loss of use of both hands
• Some types of severe burns
• Certain respiratory or breathing injuries

Temporary Residence Adaptation (TRA) grant

The Temporary Residence Adaptation (TRA) grant is to make modifications for your temporary stay at a family member’s home. You must be able to qualify for either a SAH or SHA grant, and be temporarily living in a family’s member home that requires alterations. It is not necessary for you to own the home.

• If you qualify for a SAH grant, the maximum amount you can receive for the TRA grant program is $39,669 for the 2020 fiscal year.
•  If you qualify for an SHA grant, the maximum amount you can receive for the TRA grant program is $7,083 for the 2020 fiscal year.

Native American Direct Loan (NADL) program

The Native American Direct Loan (NADL) program is for Native American veterans or veterans married to a Native American. It covers federal trust land that is used to buy or build homes. You can also use this loan to improve your property in light of a service-connected disability, or you can use the funds to refinance an existing purchase.

In order to be eligible, your tribe must participate in the NADL program, and all the following must be true:

• You have a valid COE
• Meet credit standards
• Have proof you make enough money to cover mortgage payments
• Have proof you can cover other costs associated to owning a home
• You will live in the home you are using the NADL to buy, build or improve

Interest Rate Reduction Refinance Loan (IRRRL)

VA benefits are not only for new homeowners. If you are already financing a home with a VA loan but are unhappy with your interest rate, you could potentially use an Interest Rate Reduction Refinance Loan (IRRRL) to save yourself some extra money off your mortgage.

Homeowners use an IRRRL to negotiate a lower interest rate and to switch their loans to an adjustable, variable or fixed rate that works better with their income and the current economic climate.

To qualify, you must meet these minimum terms:

• You are already using a VA home loan, and;
• The IRRRL is to replace the existing VA home loan, and;
• You presently live in or used to live on the property in question.

Homeowners insurance for veterans

To use a VA-backed home loan, you will need to show proof of homeowners insurance. If using a VA loan, you must insure the home according to the minimum amounts required by your mortgage lender.

Many lenders will require you to use an escrow account to hold a minimum of one year’s worth of insurance payments. This proves without a doubt that you will have uninterrupted insurance coverage, better securing your lender’s investment and lowering the overall risk of the loan. You may not even notice these prepayments, since some lenders will add these costs into your monthly mortgage payment.

Home insurance can be expensive, depending on where you live and which insurance provider you choose. That’s why it’s important to shop your options to see which provider will offer the best coverage at the lowest price. You can also bundle your home insurance with your auto or life insurance to potentially save money.

There are many providers like GEICO, Progressive and Nationwide that offer special discounts and savings programs for home insurance. USAA’s  purpose is to help military members and veterans.

Veteran housing benefits by state