- Loan Limits And Entitlement
- Pre-qualification vs Pre-Approval
- Certificate Of Eligibility (COE)
The process of buying or refinancing a home with a VA Loan is almost identical to traditional loan programs but does include a few additional steps like proving eligibility with a COE (certificate of eligibility) and in some cases having the property appraised by a VA licensed appraiser to ensure the loan is a safe and sound investment. If you’re ready to begin your home buying journey, keep reading to learn more about how to get started.
The VA Home Loan is an incredible benefit available exclusively to military families and veterans. Many military families don’t take advantage of this loan simply because they don’t know they’re eligible. The Department of Veterans Affairs has identified very specific guidelines to help determine who is eligible to take advantage of the VA Home Loan. In addition to active duty military and veterans, there are a few distinct groups who are also eligible.
Veterans and Active Duty
You may be eligible for a VA Home Loan if you are a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard and served between September 15, 1940 and present day and have:
- Served for 90 consecutive days of active service during wartime.
- Served for 181 days of active service during peacetime.
- Been discharged due to service-related injuries.
If you are buying as a veteran, are not currently on active duty, and weren’t discharged because of a service connected injury, you will also likely need to have completed a full 2 year tour and received an honorable discharge. If you are currently on active duty, you only need to have completed either 90 or 180 days (post training) of active duty time, depending on whether your service was during wartime or peacetime.
Reserves and National Guard
A common myth of the VA Loan is that it is not available to those who have served in the National Guard or Reserves. While the requirements of time served differ from active duty, the loan benefits are the same. You may be eligible for the VA Loan if you:
- Completed six years honorably in the Reserves or National Guard.
- Were activated on Title 10 orders for at least 90 consecutive days.
- Were discharged due to service-related injuries.
Other People Who Qualify
Another way to qualify for a VA Home Loan is if you are a surviving military spouse. Your spouse gave their life to protect this great nation and because of that, the VA Home Loan and other benefits may be extended to you.
Here are the two main ways to qualify as a military spouse:
- You are an unremarried spouse of a veteran who died while serving or from a service-connected disability.
- You are the spouse of a military member who is a POW (prisoner of war) or MIA (missing in action).
Loan Limits And Entitlement
One of the questions many home buyers ask lenders and realtors when beginning the homebuying process is, “how much can I get with the VA Loan?” Depending on where you live and if you used your VA loan prior to January 1st, 2020, you may be subject to a down payment if your loan amount exceeded the “County Loan Limit”. Luckily, in 2020, VA Loan limits were eliminated for active-duty military and veterans who have full VA loan entitlement.
What is the VA County Loan Limit?
Historically, the Department of Veterans Affairs, the agency who guarantees VA Loans, set a limit on the amount a borrower could with no down payment by limiting the amount they would guarantee. This limit is referred to as the VA County Loan Limit and is determined by the location of the subject property. The County Loan Limit does not necessarily set the maximum amount you can borrow, it simply refers to the amount of money the government will guarantee. Home buyers or those looking to refinance their home, may find themselves subject to the County Loan Limit if they have lost a portion of their entitlement through a foreclosure or short sale, or have another VA loan currently in use.
Who Does the County Loan Limit Apply To?
In 2020, the Department of Veterans Affairs announced that VA Loan Limits were eliminated for qualified active-duty military and veterans who still have their entire VA loan entitlement. In order to still have full entitlement, a qualified service member or veteran must fit into one of these three categories:
- You haven’t used your VA home loan benefit before
- You’ve had a VA home loan before but you’ve either paid it in full or sold the property
- You’ve had a VA home loan before but had a foreclosure and repaid the government in full
Service members and veterans who already have active VA loans or who defaulted on a VA Loan will likely still be subject to VA loan limits. If you’re unsure of whether or not the limit applies to you, you’ll want to consult a VA-approved lender like MHS Lending who can help you review your eligibility by ordering your Certificate of Eligibility (COE).
What is VA Entitlement?
The VA loan entitlement is the maximum dollar amount that the government will pay back a mortgage lender if a homeowner happens to go into mortgage default (or fail to repay their loan). This entitlement is important when determining how much a lender will approve you for when you’re shopping for a house and is factored into your full home purchase at the time of closing.
There are two different types of entitlement to consider. The first is called “First Tier Entitlement” and this means you don’t have any entitlement tied up in another home, or lost due to short sale or foreclosure. The second is known as “Second Tier Entitlement” and it generally is considered the remainder of your entitlement when factored against the county loan limit of the subject property.
How to Restore Your VA Loan Entitlement
If you have already used your VA Loan entitlement towards a home purchase or refinance, your entitlement may be tied up. In order to restore your status so you can take advantage of the VA Loan again, you have a few options.
- First, you can sell your existing home and pay off the mortgage you currently have in full. This will help you regain your full entitlement which can be used again towards your next purchase.
- Another option is that you can pay off your existing VA Loan in full. If you have enough money to cover the remaining balance on your VA Loan, this gives you the opportunity to use your VA Home Loan benefits again.
When you are ready to restore your entitlement, you’ll need to complete VA Form 26-1880 (or VA Form 26-1817 if you are a surviving spouse) or you’ll need to connect with a VA approved lender. The VA Form 26-1880 is the same form you use to obtain your Certificate of Eligibility (COE) and will help you start the process of getting another VA Loan and confirm you are able to do so.
Pre-Qualification vs. Pre-Approval
One of the first steps in getting a VA Loan is to obtain your pre-approval. Once you are pre-approved, you can then continue on your home buying journey and work your way to homeownership. Sometimes you may hear the term pre-qualify when starting your home buying journey. It’s important to know that while a pre-qualification can be useful at the early stages of buying a home, it is actually different from getting your pre-approval.
A pre-qualification refers to an estimate for credit given by a lender based on verbal information provided by a borrower. These estimates can be helpful, but a pre-approval is much more important.
Click here to start your instant prequalification amount (link to form)
Pre-approvals are preliminary evaluations of potential borrowers by a lender to determine the buying power of a buyer. In order to obtain a pre-approval, your lender will need to review your income, asset, credit, and other financial documents pertinent to your situation. Pre-approvals may seem like the more difficult of the two to receive, but they are well worth it. Most home sellers will not entertain an offer made from a home buyer who is only prequalified.
How to get Pre-Approved
Since pre-approvals essentially define how much money the lender is willing to lend, you will need to supply a few key documents up front. These documents help your lender determine if you’re able to cover your mortgage payments and can afford to buy a home. Examples of documents needed include:
- A government-issued ID
- Tax returns- most lenders request your two most-recent federal and state returns.
- Proof of income- you can most often show this through your paystubs, W2s, and/or 1099’s.
- Proof of assets- this includes bank statements and any applicable retirement or investment accounts like a 401K, or TSP. Your lender will let you know how far back you need to go when showing statements. They may also request updated statements as the home buying process continues.
- Credit Report- your lender will likely pull a credit report to get an accurate understanding of your current monthly liabilities. If you have an outstanding debt or payments that aren’t on your credit report, your lender will need to know.
- Rent payments- A verification of rent may be important to prove you have been making steady housing payments at a dollar amount similar to your new mortgage
Additional documents may include divorce papers, bankruptcy papers, and gift letters if anyone is helping you make your down payment.
Certificate Of Eligibility
Once you determine that you’re good to apply for a VA Loan, it’s time to apply for your Certificate of Eligibility (COE). Your COE proves that you’re able to use these benefits and is the document your bank or lender will need during the homebuying process. This document comes directly from the Department of Veteran Affairs and is proof that the veteran meets eligibility requirements.
Documents required when applying for your COE
In order to apply for your COE, you will need very specific documents:
- If you are a veteran, or current or former activated National Guard or Reserve member, you will need a copy of your discharge or separation papers (DD214).
- For active-duty service members, you’ll need a statement of service which your commander, adjutant, or personnel officer signs. The statement must show key details like your full name, social security number, date of birth. It also must show facts like the date you entered duty, the duration of any lost time, your current status, and the name of the command providing the information.
- If you are a current member of the National Guard or Reserves and have never been activated, you’ll need the same statement of service as active-duty members. Your document must also state your total number of creditable years of service.
- For discharged members of the National Guard who were never activated, you’ll need a few critical documents. Make sure you prepare your report of separation, record of service, retirement points statement, and proof of the character of service.
- Discharged members of the Reserves who were never activated need to provide a copy of your latest annual retirement points and proof of your honorable service.
- Finally, if you are a surviving spouse of a Veteran who qualifies for home loan benefits, you’ll need the Veteran’s discharge documents (if available). If you’re receiving Dependency and Indemnity Compensation, you’ll need to fill out additional forms to provide your eligibility.
The VA’s website or a VA-approved lender like MHS Lending is your best resource in determining what you need.
Apply for your COE
Once you determine you’re eligible and have all the information you need, it’s time to apply for your COE. One easy way is by going to the Department of Veterans Affairs eBenefits portal. You can also apply by mail or work directly through your VA approved lender. It’s important to note that applying online is your quickest way to receive your COE. While applying by mail is an option, it may take longer and therefore hold up your home buying process.