The Department of Veterans Affairs offers VA mortgages as a reward and thank-you for serving in the armed forces. For qualifying service members, these mortgages make homeownership more affordable than it otherwise would be.
VA Mortgages Are for Those Who Serve
All VA mortgages programs are intended for service members who are in good standing with their branch of the armed forces. While specific programs have their own requirements (see next section), all VA home loans require military service of some sort. Eligible applicants include:
- Current active-duty military personnel
- Veterans who were separated for any reason “other than dishonorable discharge”
- Reservist members of the National Guard
- Qualified surviving spouses of deceased veterans
Additionally, minimum service requirements must be met. The minimum service duration is currently as follows:
- 90 continuous days for active-duty military personnel during wartime
- 181 days for active-duty military personnel during peacetime
- 6 years for reservists and members of the National Guard
These requirements have varied slightly in the past as the country has entered and exited wars.
The Veterans Affairs’ Mortgage Programs
The Department of Veterans Affairs technically runs a few different home mortgage and loan programs, each of which has its own unique uses. Some of these programs have requirements beyond the military service obligation.
The Native American Direct Loan (NADL) program is the only program through which the Veterans Affairs office directly underwrites home loans. These are available to veterans who are either Native Americans themselves or married to a Native American, and the loan can be used to build, purchase or improve a house that’s located on Federal Trust Land.
The Purchase Loan program is perhaps the VA’s most widely used mortgage program. Through this program, home mortgages are underwritten by private lenders and guaranteed by the VA. The amount that’s guaranteed depends on the size of the loan. The VA will guarantee:
- Up to 50 percent of the loaned amount on loans of $45,000 or less
- Up to $22,500 on loans of $45,01 to $56,250
- Up to 40 percent or $36,000 (whichever is less) on loans of $56,251 to $144,000
- Up to 25 percent of the loaned amount on loans of $144,000 or more (subject to a county limit)
These VA mortgages are primarily used to purchase or build a home.
The Interest Rate Reduction Refinance Loan (IRRRL) program lets veterans who already have a VA mortgage to refinance and get another VA-backed home loan.
The Cash-Out Refinance Loan program serves as a VA-backed home equity loan. The mortgage is guaranteed by the VA and lets homeowners take equity out of their house. The equity can be used for just about any purpose.
Additional Residency and Credit Requirements
All of these VA mortgage programs have one additional requirement. They can only be used for primary residences, and borrowers must provide the VA with a certificate of occupancy to show that the home is their primary residence. The mortgages can’t be used for second homes or investment properties.
Additionally, approval is ultimately up to the lender that is actually underwriting the loan. Lenders still have minimum credit requirements that they set, although these requirements tend to be more lax than those of conventional home mortgages because part of a VA mortgage is backed by the Department of Veterans Affairs.
VA Mortgages Don’t Require Downpayments
The biggest advantage of VA mortgages is that they generally don’t require homeowners to make a downpayment at closing. Since the VA will reimburse lenders for a portion of the loan if a home goes into foreclosure, lenders will underwrite VA mortgages without requiring anything down.
By eliminating the need for a downpayment, VA mortgages eliminate one of the biggest hurdles that prospective homebuyers face. Whereas traditional mortgage programs normally require at least 3 to 5 percent down, these home loans require nothing. On a $100,000 house, that reduces how much homebuyers must initially pay by several thousand dollars.
Apply for a VA Mortgage If You’ve Served
If you or a spouse has served in the armed forces, consider using a VA mortgage to purchase a home. If you qualify for one, you might be able to get into a new house without waiting to save up a downpayment.
See VA Funding Fee Table here. (note: If the veteran receives at least 10% disability from the VA, the VA funding fee is waived.)