Almost every veteran, active duty service member, and surviving spouse qualifies for the VA’s Home Loan Guaranty Program. The VA itself doesn’t issue the loans: instead, it acts as an advocate, negotiator, and guarantor for veterans looking to obtain a mortgage.
This program can be especially advantageous for veterans who are looking to buy their first home, as it removes many of the hurdles that first-time home buyers face. If you have served our country and are not yet a homeowner, let this guide help you become one.
Veterans will simply need a copy of their DD Form 214, and active duty service members will need to have served a minimum of 181 days to be eligible. Disabled veterans may not have met the active duty requirements, but they are often exempt from meeting the minimum service days requirement for a VA home loan. Reservists and National Guard members will need to provide a current statement of service. Discharged Guardsman who hasn’t served on active duty will need either an NGB Form 22 for each period of service, or an NGB Form 23 and proof of character of service. Discharged Reservists who’ve never served on active duty will need to provide a copy of their most recent annual retirement points statement and evidence of honorable service.
Department of Veterans Affairs
P.O. Box 20729
Winston-Salem, NC 27120
The actual property will need to meet eligibility requirements as well. Not only will the home have to live up to the VA’s safety and sanitation guidelines, it will also need to be close to move-in ready (as in, you’ll need to move in within a reasonable timeframe after closing.) A little bit of a fixer-upper is fine, as the VA’s program does cover loans meant to buy and improve a home at the same time. The program also only covers certain types of properties that are intended to be your primary residence: no working farms, business or office spaces, vacation homes, or investment properties.
How The VA’s Home Loan Program Helps
The VA will act as guarantor of your home loan, meaning they will take responsibility if you default. This means that veterans with poor credit will be able to qualify for a mortgage that they wouldn’t be eligible for otherwise. The VA’s program also makes it possible to purchase a home without a down payment, though there is nothing barring you from making one if you wish. The VA does charge a funding fee in order to keep the program going with low taxpayer cost. The funding fee may vary anywhere from 0.5 percent to 3.3 percent of the loan, but you may be exempt from paying this fee in certain situations.
The VA requires that the loan obtained not carry any graduated payment features, like balloon payments or negative amortization mortgages, and it will also require a fixed interest rate that is freely negotiable and competitive with market values. The VA also puts caps on closing costs, and only allows certain permissible fees to be charged during the closing process. Because the VA acts as guarantor of the loan, you will not be required to pay mortgage insurance.
The VA allows long amortization loans (loans with extended repayment terms that allow for lower monthly payments,) and it also bars lenders from charging prepayment penalties. Lastly, the home’s builder will need to provide a warranty, and the VA will help you obtain the warranty, and the cooperation of the builder should you ever need to use the said warranty.
All of these benefits not only make for a sound loan with reasonable repayment terms, they also help veterans who might not be eligible for a traditional mortgage become homeowners.
What If You Can’t Pay Your Mortgage?
When you obtain a VA Home Loan, you are also entitled to several loss mitigation options that will help you keep your home in the event that you get behind on payments. If you are experiencing financial difficulties, you may be granted a special forbearance, which allows you to temporarily suspend mortgage payments without penalty. You may also be issued a repayment plan that will allow you to slowly make up the back payments you’ve missed, or be offered a loan modification that meets your current income standards. If your financial difficulties stem from a disability or illness that means you are unable to maintain substantially gainful employment, you may wish to use the VA disability calculator and look at further benefits or compensation that you could be entitled to. This could help with medical or mortgage costs, and help to see you through this difficult period.
In extreme circumstances, you may lose your home, but the VA’s program will keep this process from ruining your credit in one of two ways. First, you may do a compromise sale, where you sell your home at a loss in order to cover the remainder of your loan and walk away without a massive pile of debt. Second, you’ll have the option of a deed-in-lieu-of foreclosure, which means you’ll sign the deed over to the lender as repayment of your debt. Either way, the VA will keep you from experiencing the grueling hardships of a traditional foreclosure process.
In a nutshell, the VA’s Home Loan Program makes it possible for almost any veteran to become a homeowner. Please consider applying today!