Who qualifies for VA Loans?

Lenders make available a unique home loan which is guaranteed by the Veterans Administration (VA) to veterans of the US Armed Services. This guarantee protects the lender's investment should the borrower fail to pay.

Contact the VA to Determine if You are Eligible for a Loan

There are various qualifications to be deemed eligible for this benefit by the VA. Wartime veterans who served at least 90 days and were not dishonorably discharged qualify. 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. Those serving in the Reserves and National Guard for at least six years and are still serving or have been honorably discharged are also qualified. Surviving spouses of eligible persons who died as the result of service or service-related injuries who have not remarried may also be eligible. (Contact your local VA office for other questions regarding eligibility.)

Get a Certificate of Eligibility from the VA Before Applying for a Loan

In order to submit an application for a VA loan you must have a Certificate of Eligibility from the Veterans Administration. To get this, go the VA website and get: VA Form 26-1880. Fill it out and send it in along with your DD Form 214 documenting your service, if you served after 1979. This certificate does not guarantee the bank will approve your credit application, you must still qualify financially. Some veterans will be able to get an Automatic Certificate of Eligibility (ACE) through their lender via the internet, if the VA has registered sufficient information about the veteran in their database on-line.

Limitations on VA Loans

VA home loans can only be used to finance your principal 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. This can be incorporated into the loan. If you can make a down payment of at least five percent, this fee will be reduced.

VA Loan Benefits

Normally, veterans can get a loan for the entire purchase price of the home with no down payment needed. Since VA loans are guaranteed no Private Mortgage Insurance (PMI) is required which can be a huge monthly savings depending on the amount of the loan. Another benefit is, there are no penalties if you pay ahead on the loan. You will find competitive interest rates are available as well. In addition, qualifying for a loan may be slightly less difficult than obtaining conventional loan. You will find that lenders who offer FHA loans, usually also give VA loans.

Disadvantages of VA Loans

Sellers may be hesitant to negotiate with a buyer who is acquiring a VA loan as they used to take longer to process than traditional loans. However, obtaining a VA loan today takes only a little longer than a conventional loans. Sellers are often asked to pay a portion of closing costs, so be aware of that when negotiating the sales price of the home. The guaranteed maximum may make this not feasible in some markets of high home values.

If you meet the qualifications and can make the monthly payments, go for it.