There’s really no question the VA home loan is the premier option for those who are eligible and want to come to the closing table with as little cash as possible. After all, who doesn’t want that? The VA home loan doesn’t require a down payment at all. Zero. The only other loan program that doesn’t need any type of down payment or subordinate financing is the USDA program, but that one is reserved for properties located in rural areas and the borrowers must meet certain income limitations. The VA loan can be used anywhere and there are no income limitations. There are limitations though regarding who can take advantage of this program. In addition, the borrowers are limited from paying certain kinds of closing costs which further reduces the need for cash to close.
Who is eligible for this VA loan? Veterans of the Armed Forces can. So too are active duty personnel with at least 181 days of service as well as surviving spouses of those who have died while serving or as a result of a service-related disability. National Guard and Armed Forces Reserve members with at least six years of service may also take advantage of this special program. On the loan application there is a space where it asks which type of loan the borrowers are applying for, and these borrowers simply check the “VA” box. But there’s a little more to do to make sure someone is eligible.
That’s accomplished by obtaining and reviewing a copy of the borrower’s Certificate of Eligibility, or COE. Without this document, a lender cannot issue a VA loan. The COE must accompany and be included in the entire loan application package. The COE is obtained directly from the Department of Veteran’s Affairs. This document will show how much entitlement the borrower has available. For those who have never taken out a VA loan, there will be full eligibility. The VA loan comes with a guarantee to the lender. Should a VA loan ever go into default the lender is compensated at 25% of the loss. This guarantee also makes it easier to qualify for compared to other low or no-down payment programs, due to this guarantee. The guarantee is financed by what is referred to as the Funding Fee which for first time buyers and most programs is currently 2.15% of the loan amount and is not paid for out of pocket but instead rolled into the final loan amount.
What many might not be aware of is the VA loan is not just a one-time option. A VA loan can be used again as long as the original entitlement is restored and eligibility renewed. How is eligibility restored? Eligilitiy is restored when the original VA loan has been retired. One way a VA loan can be retired is to refinance out of the VA loan and into a conventional mortgage. Refinancing out of a VA loan may or may not be in your best interest, you and I will discuss that together. It’s possible that a VA-to-VA refinance is best. Lower costs and a streamlined process make for an attractive option. However, refinancing into a VA loan still means a new funding fee will be required. That can mean a higher loan amount compared to refinancing into a conventional mortgage.
Another way to regain eligibility for the VA program is to simply sell the property which in turn pays off the outstanding VA loan. Once the loan is paid off, eligibility is restored. Your settlement statement from the sale will be forwarded to the Department of Veteran’s Affairs which will then update your entitlement. This can take several weeks for the statement to make it through the process. However, if a veteran wants to use the VA loan to buy the next home without having to wait for eligibility to be officially restored, the lender has documentation that the current VA loan is being paid off with the sale of the property and a new VA loan can be taken out without having to wait.
Again, you do have options. We can determine which road to take after a brief conversation over the phone or in person. The VA loan is without peer for those who qualify. Let’s take advantage of it again and see how much money you can save at your next closing.