• VA loans

The VA assists Servicemembers, Veterans, and eligible surviving spouses purchase homes by providing home loan guarantees to lenders to lower the cost of borrowing for homebuyers.  VA loans can be used to buy a home or condominium in a VA-approved project, build a home, purchase and improve a home, cover the costs of energy efficient improvements, or buy a manufactured home.  The VA programs include: Purchase Home Loan, Cash-Out Refinance Loan, Interest Rate Reduction Refinance Loan, Native American Direct Loan, Specially Adaptive Housing Loan, and Specially Adaptive Housing Assistive Technology Grants.

Purchase and Cash-Out Refinance Loans

Purchase Loans offer competitive rates to borrowers and are used to purchase new homes, whereas Cash-Out Refinance Loans allows you to take cash out against the equity of your home.  Cash-Out refinance loans are commonly used to pay off other debt, fund school, make home improvements, or to convert a non-VA loan into a VA loan.

Benefits of loan

  • No down payment if the sales price is less than or equal to the appraised value
  • No private mortgage insurance required
  • VA limits the amount of closing costs that can be charged by the lender
  • The Closing costs can be paid for by the seller
  • The lender cannot charge a penalty for paying off the loan early
  • The VA may be able to provide assistance if you are having difficulties making your monthly payments during the term of the mortgage

Eligibility – Servicemembers and Veterans

You can qualify for a VA loan if you are purchasing the home as your primary residence and you have suitable credit and sufficient income.  Additionally, you will also be required to obtain a Certificate of Eligibility (COE).  The eligibility requirements for a COE are listed below.

Status Qualifying Wartime & Peacetime Periods Qualifying Active Duty Dates Minimum Active Duty Service Requirements
Veteran WWII 9/16/1940 – 7/25/1947 90 total days
Post-WWII 7/26/1947 – 6/26/1950 181 continuous days
Korean War 6/27/1950 – 1/31/1955 90 total days
Post-Korean War 2/01/1955 – 8/04/1964 181 continuous days
Vietnam War1 8/05/1964 – 5/07/1975 90 total days
Post-Vietnam War2 5/08/1975 – 9/07/1980 181 continuous days
24-month rule3 9/08/1980 – 8/01/1990 24 continuous months or the full active duty period (at least 181 days)
Gulf War 8/02/1990 to present 24 continuous months or the full active duty period (at least 90 days)
Currently on Active Duty Any Any 90 continuous days
National Guard and Reserve members Gulf War 8/2/1990 to present 90 days of active services

1 The beginning date is 2/28/1962 for Veterans who served in the Republic of Vietnam

2 The ending date for officers is 10/16/1981

3 The beginning date for officers is 10/17/1981

 

You must also have been discharged under conditions other than dishonorable to receive a COE. If you do not meet the service requirements noted above, you may still be eligible to receive a COE if you were discharged due to hardship, the convenience of the government, reduction in force, certain medial conditions, or a service connected disability.

If you are a member of the National Guard or reserves, you can obtain a COE if you’ve provided 6 years of service in the National Guard or Selected Reserve and meet one of the following criteria: Honorably discharged; placed in the retired list; transferred to the Standby Reserve or another element of the Ready Reserve after service characterized as honorable; or, continue to serve in the Selected Reserve.

Eligibility – Spouses

Spouses of Veterans may also qualify for a VA loan.  In order to qualify, you must meet the following criteria:

  • Unmarried spouse of Veteran who died in service or from a connected disability
  • Spouse of Servicemember who is missing in action or is a prisoner of war
  • Surviving spouse of a Servicemember or Veteran who remarries on or after age 57, and on or after December 16, 2003
  • Surviving spouse of certain disabled Veterans, even if the disability may not have been the cause of death

Eligibility – Other beneficiaries

  • S. citizens who served in the armed forces of a government allied with the United States in World War II
  • Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with World War II service, and others

Restoration of Entitlement

If you have previously purchase a home with a VA loan, you can reestablish your entitlement and purchase another home with a VA loan if either of the following criteria is met:

  • The previously purchased property has been sold and the prior VA loan was paid in full
  • A qualified Veteran-transferee (buyer) agrees to assume the VA loan and substitute his or her entitlement for the same amount of entitlement originally used by the Veteran seller. The entitlement may also be restored one time only if the Veteran has repaid the prior VA loan in full, but has not disposed of the property purchased with the prior VA loan

Loan Fees

VA loans typically require the borrower to pay a funding fee.  The funding fee is calculated as a percentage of the loan amount and can be paid in cash or rolled into the mortgage.   You are not required to pay the funding fee if:  You are a Veteran receiving VA compensation for a service-connected disability; you would be entitled to receive VA compensation for a service-connected disability if you didn’t receive retirement or active duty pay; or you are surviving spouse of a Veteran who died in service from a service-connected disability.  The funding fee is generally higher for second time users who do not make a down payment on the home.  It is also slightly higher for National Guard and Reserve Veterans.  The funding fees by loan type through September 30, 2016 are disclosed in the tables below.

Purchase and Construction Loans

Down payment Fee for First Time Use Fee for Subsequent Use
Regular military None 2.15% 3.30%
5% – 10% 1.50% 1.50%
10%+ 1.25% 1.25%
Reserves/National Guard None 2.40% 3.30%
5% – 10% 1.75% 1.75%
10%+ 1.50% 1.50%

 

Other Types of Loans

Fee for First Time Use Fee for Subsequent Use
Cash-Out Refinancing Loans
Regular military 2.15% 3.30%
Reserves/National Guard 2.40% 3.30%
Interest Rate Reduction Refinance Loans 0.50% 0.50%
Manufactured Home Loans 1.00% 1.00%
Assumption of VA Loan 0.50% 0.50%

While the amount of the funding fee is set by the VA, the lender dictates the majority of the other terms of the loan, such as the interest rate, discount points, and closing costs.  The lender is not, however, allowed to charge commissions/brokerage fees to Veterans.  VA loans also allow the seller to pay for some of the closing costs.

Loan Limits

The VA does not set a cap on the amount you can borrow to purchase a home; however, the VA will only insure a certain amount of your home’s purchase price.  The VA loan limits vary by county and are consistent with the FHA loan limits.

Lenders will typically lend up to 4 times the Veteran or Servicemember’s available entitlement without requiring a down payment (assuming the individual is credit and income qualified).  The basic entitlement available to each member is $36,000.

If you’ve previously had a VA loan, you may still have some remaining entitlement to use for another loan.  In this instance, lenders generally require that the remaining guaranty entitlement and the cash down payment (if any) must equal 25.0% of the purchase price of the home.

Interest Rate Reduction Refinance Loans

Interest Rate Reduction Refinance Loans allow you to refinance your loan.  These types of loans can be used to take advantage of low interest rate environments (as a lower interest rate reduces monthly payments) or to restructure an adjustable rate mortgage to a fixed rate mortgage.  These differ from Cash-Out Refinancing Loans as you cannot receive any cash from the loan proceeds with Interest Rate Reduction Refinance Loans.

Benefits of loan

Interest Rate Reduction Refinance Loans are simpler to obtain as they do not require an appraisal or credit underwriting.  They can also be obtained without coming out of pocket to pay for the associated costs as these can be rolled into the new mortgage.

Eligibility

Interest Rate Reduction Refinance Loans can only be used to refinance existing VA loans.  When obtaining an Interest Rate Reduction Refinance Loan, it isn’t necessary to obtain a new Certification of Eligibility as you can reuse your previous entitlement when refinancing the loan.  Additionally, you can refinance your existing VA loan even if you no longer occupy the house.  You only have to certify that you previously occupied the home.

Loan Limits

The VA does not set a cap on the amount you can borrow to purchase a home; however, the VA will only insure a certain amount of your home’s purchase price.  The VA loan limits vary by county and are consistent with the FHA loan limits.

Lenders will typically lend up to 4 times the Veteran or Servicemember’s available entitlement without requiring a down payment (assuming the individual is credit and income qualified).  The basic entitlement available to each member is $36,000.

Funding Fee

VA loans typically require the borrower to pay a funding fee.  The funding fee is calculated as a percentage of the loan amount and can be paid in cash or rolled into the mortgage.   You are not required to pay the funding fee if:  You are a Veteran receiving VA compensation for a service-connected disability; you would be entitled to receive VA compensation for a service-connected disability if you didn’t receive retirement or active duty pay; or you are surviving spouse of a Veteran who died in service from a service-connected disability.

Unless you are exempt, the funding fee for Interest Rate Reduction Loans is 0.5% of the loan amount for all borrowers.

Native American Direct Loan

The Native American Direct Loan (NADL) program can be used by Native American Veterans and their spouses to purchase Federal trust land or to refinance an existing NADL.  Unlike other VA loans, the VA is the actual lender with the NADL program.  NADLs mortgages are structured as fixed-rate mortgages with a 30-year term and an interest rate of 3.75%.  The interest rate is reevaluated by the VA on a regular basis and is subject to change based on market conditions.  The maximum loan amount for an NADL is consistent with those of a typical FHA loan.

Benefits of loan

NADLs offer several benefits to homebuyers as listed below.

  • Easy to obtain
  • No down payment
  • Dedicated VA staff to assist with the home buying process
  • No private mortgage insurance
  • Low closing costs
  • Re-usable benefit

Eligibility

To be eligible for the NADL, you must meet the following criteria:

  • Obtain a valid Certificate of Eligibility and have available entitlement
  • The loan process must be used to purchase, construct, or improve a home on Federally-recognized trust, allotted lands, Alaska Native corporations and Pacific Island territories. Additionally, the tribal government must have signed a Memorandum of Understanding with the Secretary of Veterans Affairs.
  • You must occupy the property as your residence
  • You must have suitable credit and sufficient income to finance the mortgage payments

Funding Fee

Native American Veterans pay a funding fee of 1.25% of the loan amount for the purchase of a new home and 0.5% to refinance an existing NADL.   The borrower can either pay these costs in cash or roll them into the new mortgage amount.  As with other VA loans, you are exempt from paying the funding fee if: You are a Veteran receiving VA compensation for a service-connected disability; you would be entitled to receive VA compensation for a service-connected disability if you didn’t receive retirement or active duty pay; or you are surviving spouse of a Veteran who died in service from a service-connected disability.

Specially Adapted Housing

The VA provides grants to Servicemembers and Veterans with certain permanent, service-connected disabilities to help purchase, build, or adapt homes to accommodate a disability.  The VA’s grant programs include the Specially Adapted Housing (SAH) Grant and Special Housing Adaptation (SHA) Grant.

Specially Adapted Housing Grant

This SAH program helps Veterans with service-connected disabilities live independently in a barrier free environment.  It can be used to build a specially adapted home on land.  The land can either be acquired when you receive the grant or currently owned.  You can also use the grant to remodel an existing home or apply the grant against the principal balance of an existing mortgage that was acquired without the assistance of a VA grant.

The SAH program allows a maximum 3 grants up to the maximum dollar amount allowance.  The home must also be owned by the individual and he or she must meet one of the disability requirements, as listed below.

  • Loss of (or the use of) both legs
  • Loss of (or the use of) both arms
  • Blindness in both eyes (having only light perception), plus the loss of (or the use of) one leg
  • Loss of (or the use of) one lower leg with residuals of organic disease or injury
  • Loss of (or use of) one leg, plus the loss of (or use of) one arm
  • Certain severe burns
  • The loss of (or the use of) one or more lower extremities from service on or after September 11, 2001, which affects your balance or propulsion as to preclude ambulating without the aid of braces, crutches, canes, or a wheelchair

The maximum amount available for an SAH is currently $73,768.  This may be adjusted upward annually based on the cost-of-construction pricing index.

If you are currently living in the home of a family member, you may be able to obtain a temporary SAH grant which provides up to $32,384 to adapt their home.

Special Housing Adaptation Grant

The SHA program assists Veterans with service-connected disabilities adapt or purchase a home to accommodate the disability.  It can be used to adapt a home that is currently owned or to remodel one that is going to be purchased.  It can also be used to purchase a home that has already been adapted.

The SHA program allows a maximum 3 grants up to the maximum dollar amount allowance.  The home must also be owned by the individual or family member and he or she must meet one of the disability requirements, as listed below.

  • Blindness in both eyes with 20/200 visual acuity or less
  • Loss of (or the use of) both hands
  • Certain severe burns
  • Certain severe respiratory injuries

The maximum amount available for an SHA is currently $14,754.  This may be adjusted upward annually based on the cost-of-construction pricing index.

If you are currently living in the home of a family member, you may be able to obtain a temporary SHA grant which provides up to $5,782 to adapt their home.

If interested in obtaining of these grants, you can submit an application at www.ebenefits.va.gov.

Specially Adapted Housing (SAH) Assistive Technology Grant

The SAH allows the VA to award grants up to $200,000 per year to people or entities to encourage the development of new SAH assistive technologies to improve the quality of life for disabled Veterans and Servicemembers.  A “new assistive technology” is defined by the VA as an advancement that could aid or enhance the ability of a Veteran or Servicemember to live in an adapted home. Such technologies include voice recognition/voice command operations, living environment controls, and adaptive feeding equipment.

The VA is authorized to award up to $1.0 million in grants for 2016 with a maximum of $200,000 per recipient.  The number of grants issued is based on the quality of the application and remaining funds available.  Applicants can register through www.Grants.gov.

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