The VA Home Loan is one of the most powerful mortgage products available today. This loan is guaranteed by the United States Department of Veterans Affairs (VA) and is reserved exclusively for military members and veterans. With amazing benefits ranging from a $0 down payment to no private mortgage insurance (PMI), the VA Loan allows eligible service men or women, veterans, and some military spouses the opportunity to buy a home using advantages reserved exclusively for those serving or who have served in the military.
History of the VA Loan
While many people have heard of this loan, the history behind it is lesser known. The VA Loan has been around for almost a century and has had quite a transformation over the years as it has morphed into the powerful loan product it is today. Following the end of World War II, members of the United States military were returning home from abroad and the government wanted to commemorate the occasion.
Readjusting to life after war can be incredibly challenging and the government knew it needed to establish resources to help veterans and servicemembers settle back into a normal life at home. To properly thank these veterans, the US established the Service Member Readjustment Act (also known as the GI Bill of Rights) which was passed by Congress and signed by President Franklin D. Roosevelt on June 22, 1944. This act gave veterans and servicemen access to several benefits including education, jobs, and what is known today as the VA Home Loan.
The VA Home Loan is designed to guarantee or insure home loans for eligible military members, veterans, and eligible military family members by VA-approved lenders. Owning a home is a major component to the “American Dream” and by guaranteeing loans the government made the process easier for those who fought to protect that dream. At its inception, the average home cost around $8,600 and therefore the limit for a VA Loan was granted up to $2,000.
Changes to the VA Loan over the years
Since the 1940’s, there have been many amendments and adjustments to the loan to improve its reach and strengthen its benefits. These include expanding eligibility requirements, grandfathering veterans in from other wars, the removal of expiration dates, and allowing for additional flexibility with the loans provided. One notable change came in 1970 with the Veterans Housing Act which removed all termination dates and provided an amendment to allow for a refinancing component. Four years later an amendment was introduced that allowed for veterans and servicemembers to restore their loan entitlement after their VA Home Loan was paid off or sold. The Veterans Home Loan Program Amendments of 1992 was another turning point for the loan as it expanded eligibility to Reservists and National Guard personnel who had been serving for a set number of years.
While the VA Home Loan was originally created to benefit veterans from World War II, it was eventually expanded to all servicemembers, veterans, and some surviving spouses. Since 1944, millions of veterans and servicemen and women have taken advantage of the VA Home Loan which has helped level the playing field for those who have fought to protect and serve our country.
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 who have served at least 90 consecutive days during war time or 181 consecutive days during peacetime, there are a few distinct groups who are also eligible. These include those who have served or are currently serving in the Reserves or National Guard and have successfully completed six years of honorable service and military spouses whose spouse is MIA, a POW, died while serving or died from a service-connected disability.
Eligibility and requirements for getting approved
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 laid out very specific VA Home Loan eligibility requirements. In addition to active duty members and veterans, there are a few distinct groups that are also eligible.
Members of the Army, Navy, Air Force, Marine Corps, or Coast Guards
- If you served between September 15, 1940-present day
- If you’re active duty and have served
- At least 90 consecutive days during war time
- At least 180 consecutive days during peacetime
- Veterans who served 24 months consecutively and were honorably discharged
- Veterans who were discharged prior to 24 months due to service-related injuries may also be eligible
Members of the Reserves and National Guard
- If you have completed 6 years of honorable service
- Who were mobilized for active duty service for at least 90 consecutive days under Title 10 or Title 32 orders
- If you’ve been discharged due to a service-related injury
- If you met requirements during those years
Surviving Military Spouses
- If you’re an unremarried spouse of a veteran who died while in service or from a service-connected disability
- If you’re a spouse of a military member who is a POW (prisoner of war) or MIA (missing in action)
In order to get started on applying for a VA Loan, you’ll need to obtain two critical things first: your Certificate of Eligibility (COE), and a pre-approval.
- Your COE proves that you’re eligible to use the VA Loan benefits and is the document your bank or lender will need during the homebuying process.
- Pre-approvals are preliminary evaluations of potential borrowers by a lender and determine the buying power of a buyer.
Once you have your COE and pre-approval in hand, you can then continue on your home buying journey and start the fun part, shopping for a home.
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What happens next?
Once you’ve obtained your COE through the VA or through your VA-approved lender and have been pre-approved, it’s time to jump into the home buying process.
- Go home shopping: this is the fun part! Check out homes that work within your budget and have the amenities you’re looking for.
- Submit an offer: once you find the house you’re ready to commit to, it’s time to make an offer and prepare for negotiations!
- Submit updated documents to your lender: this will happen right before you submit an offer that has been accepted. Your lender will supply you with a list of documents to submit and that will get your loan into processing!
- Lock in your interest: once your lender has received your updated documents and the contract, you’ll be given an opportunity to lock in your interest rate. Typically you can lock it in for 15, 30, 45, or 60 days. Be sure to lock your rate for as long as the negotiated escrow period, or longer! Inspections can take a while so don’t be afraid to go with something outside of 30 days.
- Get a home appraisal and home inspection: now that your offer has been accepted, you’ll move forward with the loan process and will begin the inspection and appraisal process.
- Receive approval: after all your documents have been reviewed you’ll receive underwriting approval and can go to closing.
- Close on your home: after you’ve had an offer accepted, gone through the full approval process and all inspections and are ready to go, your lender will clear you for closing!
- Sign your final loan documents and get the keys to your home: Congratulations, you are a homeowner!
Documents that will be reviewed
As mentioned above, your lender will need to obtain very specific documents and verifications to submit to the underwriters in order to complete the loan process and get approval. These documents include:
- Credit report to ensure the borrower has a good credit score and no red flags on past credit like bankruptcy or other financial issues.
- Employment verification to show how much income borrowers have now, and any anticipated additional income as laid out in employment agreements. Documents to help with this include:
- W-2’s from the last two years.
- Pay stubs from the last 30-60 days prior to applying.
- Tax Returns from the last two years.
- Asset information including statements from all bank accounts such as checking, savings, and retirement accounts.
- Any additional income asset or liability information like dividends, overtime, pension, child support, etc.
- Certificate of Eligibility (also known as COE and document specifically needed for VA Loans only) in order to identify a few critical factors specific to veterans and service members. First, the amount of available entitlement for the veteran or military member is determined, then the status of exempt/non-exempt from the funding fee is confirmed and finally the amount of VA monthly service-connected disability compensation is checked.
If all of these documents are checked and approved, underwriters can issue a “clear to close'' which means borrowers are ready to go to the final stage of the process, closing.