VA Loan Requirements

The VA Loan Guaranty Program was created by Congress in 1944. It is intended to help returning service members obtain a loan. A Veteran Affairs (VA) loan is known as one of the most flexible lending options available in the market today, and the Department of Veterans Affairs has helped over 18 million military members purchase a home since its inception.

The main benefit to a lender that issues VA loans is that the Department of Veteran Affairs guarantees to repay approximately a quarter of every loan they guarantee in the unlikely event that a borrower defaults. This, of course, provides a VA-approved lender with a great deal of protection. Therefore, VA loans are typically issued to military borrowers at some of the most competitive terms and rates for eligible veterans.

There are also various benefits for the borrower and, without doubt, the most significant of these is that the borrower is able to borrow money without having to put any money down. In fact, it is possible for a potential borrower to obtain 100% financing. There are also far less stringent underwriting criteria and requirements than a conventional loan.

It is estimated that up to 80% of VA borrowers will not qualify for a traditional loan, and another fantastic benefit is that the borrower will not be required to pay private mortgage insurance (PMI). This is a monthly expense that is typically charged to conventional borrowers that are unable to provide at least 20% of the loan amount as a down payment.

The eligibility requirements for a VA loan are actually fairly broad, but unfortunately fewer than 10% of the estimated 25 million veterans in this country have taken advantage of this type of lending. Many believe that they are simply not eligible, whereas a significant proportion of veterans are completely unaware of the VA Loan Guaranty Program and how it can help them and their families.

In order to be eligible for a VA loan there are certain eligibility requirements and these include:

  • Members of the military who have served at least 181 days on active duty or at least 3 months during a time of war.
  • Those who have spent at least 6 years in the National Guard of Reserves.
  • The spouses of those killed in the line of duty.

A veteran or active-duty service member will also be required to obtain a Certificate of Eligibility from the Veterans Administration. This is an official document that will certify that a person has VA entitlement, and therefore is eligible to participate in this program. The entitlement is actually the amount of money that the Veterans Administration is willing to guarantee on a loan.

There is also a maximum cap to VA loans, and VA lenders will typically adhere to preset limits and guidelines that have been established by the federal mortgage agencies, Fannie Mae and Freddie Mac. Qualified borrowers are able to obtain up to $417,000 without the need to put any money down, although this limit is raised to $625,000 in some of the countries more expensive counties.

There are 5 basic requirements to be approved for a VA loan:

  • The loan applicant will need to be an eligible veteran who has been issued with an entitlement.
  • The loan can only be issued for an eligible purpose including for purchasing a one-family residential unit, to purchase a farm residence, or to purchase a manufactured or modular home. It can also be used to refinance an existing VA guaranteed loan in order to lower the interest rate, refinanced to take out more cash, and to repair, alter or improve a home.
  • The veteran must either occupy or intend to occupy the property as their home within a reasonable amount of time after the loan has closed.
  • The applicant will need to be deemed a satisfactory credit risk.
  • The veteran and their spouse must have a stable income that is sufficient to meet the monthly mortgage payments. Their income should also cover the basic costs of owning a home, and allow them to pay for their other financial obligations and expenses.

It must be said that a VA loan may not always be the best option for an eligible veteran or active-duty service member. While this is a great way to borrow money for an applicant that has a low income and a less than perfect credit record, for those that have a good credit standing and adequate cash reserves, they may be able to find more favorable interest rates with a traditional loan.