How to Reinstate Your VA Eligibility

For those fortunate enough to have earned their VA home loan eligibility, the VA program is the ideal low-closing cost mortgage. There really is no other program that can match it. Perhaps the most attractive feature of the VA loan is the down payment.  The VA loan doesn’t require a down payment. In addition, veterans aren’t required to pay certain types of closing costs, so the cash-to-close number is extremely low compared to other types of financing options. Veterans are only allowed to pay for an appraisal, credit, title, origination and recording fees. All other remaining fees must be paid for by some place other than the veteran’s bank account.

VA Home Loan Program

This zero down program also doesn’t need a monthly mortgage insurance payment. Other loan programs that offer a low down payment option require there be a monthly mortgage insurance payment. This inflates the monthly payment, directly affecting affordability. Mortgage insurance for a VA loan comes in the form of the Funding Fee. The funding fee is expressed as a percentage of the base loan amount and is rolled into the loan. So it’s not paid for out of pocket.

Should a VA mortgage ever go into default, the lender is compensated at 25% of the loss. When you combine the low cash-to-close requirement, competitive rates and no monthly mortgage insurance premium, the VA loan is hard to beat.

Determining VA Eligibility

VA eligibility is documented by retrieving the Certificate of Eligibility. This certificate is held by the Department of Veteran’s Affairs. When exploring the VA home loan option, consumers will need to produce this certificate. This is the only document that certifies VA eligibility. Consumers can request this document on their own by making a request to the department but it’s much easier and faster to have the lender do it for you.

VA approved lenders have access to the Automated Certificate of Eligibility, or ACE. ACE can deliver the certificate essentially in a matter of moments after making the request. The certificate will then be included with the final loan package. Yet what many may not know is the VA loan program can be used more than once, and not just for the initial purchase.

How to Reinstate Eligibility

But once the certificate is issued, it cannot be used again. However, to reinstate the eligibility for a VA loan, there are a couple of things borrowers can do. One of the features of the VA program is the option to let a third party “assume” the mortgage. Homeowners who purchased a home with a VA loan can let a third party take over the mortgage. This is a great option, instead of the new buyers getting a new mortgage on their own.

This can be an attractive feature if the existing VA mortgage rate is more competitive than the current market. To assume a VA loan, buyers must apply for the assumption with the VA and qualify for the assumption based upon acceptable credit, income and assets. With an assumption though, the veteran cannot use the VA benefit again as the original loan is tied to the first purchase.

Takeaway

In order to restore eligibility in such an instance is to have the new buyers provide their own financing by refinancing the existing VA mortgage into another type. Doing so restores eligibility and the veteran can then buy and finance another property with a no-down payment VA loan. Or, the new buyers decline to assume the existing loan and provide their own financing. In this way, the VA loan is retired and eligibility is restored.