Those new to the homebuying market here in California may wonder why you occasionally hear…
Military service is full of hardships but also has some pretty substantial benefits. Some are intangible—the sense of pride, the unmatched camaraderie—but others are a bit more material. And one of the most significant of those latter benefits is the VA home loan.
On an episode of “The New Way Home,” our team answered a few commonly asked questions about qualifying for VA loans: applying for a VA loan, usability, assumability, and how a VA loan works with owning rental properties. If you haven’t subscribed to our weekly show, make sure to do so by clicking here.
There is so much worth knowing about VA loans, their benefits, and how to get one—and we’re here to set the record straight for you. Here’s what you need to know about VA home loan eligibility, benefits, investing, and more in 2021.
VA Loan Overview
A VA home loan is a home loan issued by a mortgage broker or lender that is partially backed by the U.S. Department of Veterans Affairs—meaning that the VA secures the loan to the end investor in case of default, which presents less risk to the lender and the investor. Because VA loans are backed by the federal government, they come with some pretty awesome (and unconventional) benefits, including 100% financing, no monthly mortgage insurance, flexible credit qualifying guidelines, and more.
Types of VA Loans
The most common uses of the VA home loan program are these types of loans:
- Purchase loans: These are for active service members, veterans, or surviving spouses looking to purchase a primary or second home.
- Cash-out refinance loans: These loans are for people looking to refinance the mortgage they already have on a home and take equity out of their home in the process. Sometimes called “cash-out refi” loans.
- Interest Rate Reduction Refinance Loan (IRRRL): Interest rate reduction refinances—often shortened to IRRRLs and pronounced “earls”—are for people who already have VA loans and want to lower their interest rate and mortgage payment by refinancing their existing mortgage.
- NADLs: If you’re a veteran of Native American descent, you may qualify for a Native American Direct Loan through the VA. This loan allows you to buy, build, or improve a home on federal trust land.
The vast majority of U.S. military veterans, reservists, and active service members are eligible for standard VA loans. As long as you’re currently serving or are a veteran who has been discharged with honorable status, you only need to meet one of these two length-of-service requirements:
- If you served or are serving on active duty, you must have done so for at least 90 days of active duty in time of war or at least 181 days during peacetime.
- If you served or are serving in the Reserves or National Guard, you need at least six years of service.
Time-in-service minimums don’t apply to those discharged due to service-connected medical issues and/or disabilities.
VA Loans for Surviving Spouses and Others
In addition to those who spent time in the uniform of one or more of the armed forces, spouses of deceased service members are eligible for loans of their own if they fall into any of the following categories:
- Those whose spouses were rated at 100% disabled and died from non-service-related causes.
- Those whose spouses died in service or due to service-connected disabilities, provided that they have not remarried before age 57 or Dec. 16, 2003.
- Spouses of those listed as POW or MIA—prisoners of war or missing in action.
In addition to military personnel and surviving spouses, there are a few other categories of people who may be able to take advantage of a VA loan:
- Former cadets or midshipmen of U.S. military service academies who did not enter military service after graduation.
- Uniformed officers of the Public Health Service and National Oceanographic and Atmospheric Administration.
- U.S. Merchant Marine sailors who served during World War II.
- American citizens who served with any Allied military force during World War II.
Benefits of a VA Loan
The benefits of a VA loan are undeniable and not comparable to any other mortgage on the market, especially when it comes to the ability to put little to no money down. Some VA loan benefits include:
- No down payment (100% financing)
- No monthly mortgage insurance premiums
- Flexible credit score and qualifying guidelines
- Competitive interest rates
- No pre-payment penalties
- Lifetime benefit
And there’s more! Check out all the advantages of VA loans by clicking here.
How to Buy a Home with a VA Loan
For much of the loan process, purchasing a property is the same as it would be with a normal loan. You get pre-qualified for a loan, work with a real estate agent, house-hunt, make an offer, and so on. The only difference is in the paperwork.
You will need to obtain a Certificate of Eligibility (COE) to confirm your VA eligibility. To do that you will need the following documentation:
- If you’re a veteran, you’ll need a copy of your discharge or separation papers (DD214).
- Active-duty service members will need a statement of service signed by their commander, adjutant, or personnel officer including full name, Social Security number, date of birth, date you started duty, duration of any lost time, and name of the command providing information.
- A surviving spouse who qualifies for home loan benefits will need the veteran’s discharge documents (DD214).
VA Loans and Investment Properties
There’s no denying that VA home loans are worth using. But you may be wondering if you can use them to buy more than just a primary residence—how about a second home or investment property? The answer is yes, followed by IF…
Technically, you can use a VA loan only to purchase a primary residence. But there are a couple of workarounds that are important to note:
- First, that residence can be a multi-family dwelling with up to four units. So you could buy a four-unit townhouse with a VA home loan, use one unit as your primary residence, and rent out the other three units with no problem.
- Second, life in the military often means moving—a lot. You may also buy a home, live in it, move, and convert it to an investment property later with no problem. The only caveat to this is that you must have occupied the home as your primary residence when you purchased it.
An Outstanding Benefit of Military Service
VA loans have been helping veterans and their families realize their dreams of homeownership for over half a century. In our opinion, VA home loan eligibility is one of the greatest benefits an active service member, veteran, or surviving spouse has access to. We hope we’ve provided you with the information you need to fully understand this benefit. For additional resources from New Way Mortgage on VA mortgages, click here.
If you need help exploring your options with your VA eligibility, New Way Mortgage is here to help. Our co-founder Aaron Clowes is a veteran himself and takes pride in helping his fellow service members and veterans realize their true VA benefit and put their hard-earned service to work generating long-term wealth through homeownership. Click here to connect with Aaron.