Does a VA Loan Work For You?

The Veterans Administration (VA) guarantees mortgages to veterans of the US Armed Services which are obtained through banks and other private mortgage companies. This program guarantee preserves the lender's assets should the borrower default thereby providing stimulus for lenders to qualify veterans.

Contact the VA to Weigh Your Eligibility for a Loan

There are various qualifications to be deemed eligible by the VA for this benefit. First is wartime veterans who served at least 90 days and were not dishonorably discharged qualify. Then, peacetime service veterans need to have served at least 181 days if they served prior to Sept 7, 1980 or at least two years after that date and were honorably discharged. Also, those serving as Reservists or National Guard for at least six years and still serving or have been honorably discharged are also eligible. Surviving spouses of eligible persons who died as the result of service or service-related injuries who have not remarried also qualify. (You can contact your local VA office for other questions regarding eligibility.)

Prior Certificate of Eligibility from the VA Not Always Necessary

Many veterans will be able to get an Automatic Certificate of Eligibility (ACE) through their lender via the internet. The VA has entered sufficient information about some veterans in their database on-line, which make the ACE possible. If your records are not entered, visit the VA website and get the VA Form 26-1880. You can fill it out and send it in along with your DD Form 214 which documents your service record, if you served after 1979. Check the website to show documentation for prior service in the military. Having this certificate does not guarantee the bank will approve your loan application, you must still qualify financially according to lender requirements.

Limitations on VA Loans

VA home loans can only be used to finance your primary residence within the United States or its territories. VA loans can also be used for home refinances as well as some kinds of home improvements as long as you haven't borrowed the maximum amount allowed. You need to check on the maximum amount allowed in your area. The loan limit for 2008 is $417,000 ($625,500 for Hawaii, Alaska, Guam and U.S. Virgin Islands). Qualifying veterans can get a no down payment loan for those amounts.

There is a Funding Fee

A fee of two percent of the loan amount or 2.75 percent for reservists must be paid when you close your VA loan. You may add this to your loan. If you can make a down payment of at least five percent, this fee will be reduced.

Advantages of VA Loans

Typically, veterans can get 100% financing with no down payment required. VA loans are guaranteed so there is no Private Mortgage Insurance (PMI) required which can easily be a savings of over $50 per month. Also, there are no penalties if you prepay the loan. Competitive interest rates are also available. Finally, loan qualification may be slightly easier than if you were applying for a conventional loan. Check with lenders offering FHA loans to find one who makes VA loans.

The Downside of a VA Loan

Until recently, VA loans took longer to obtain, so sellers may be hesitant to entertain an offer knowing it is tied to a VA loan. However, you can reassure sellers that getting a VA loan today takes only a little longer than a conventional loans. Be aware that sellers are often asked to pay a portion of closing costs, so take this into account when negotiating the sales price of the home. The guaranteed maximum VA loan allowable may not make this loan feasible in expensive markets.

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