On Saturday, we celebrated Armed Forces Day across the country. Here in Wisconsin, home to nearly 900,000 U.S. veterans, the day was noted with a Harley-Davidson Support the Troops Ride, military displays, a 21-gun salute and Echo Taps and more. A couple hours north of Madison, Fort McCoy held an open house celebration.
California’s attorney general Kamala Harris sums it up when she said “We owe our vets the support and benefits they earned while wearing a uniform.” We all know about the shoddy medical support these men and women have been subjected to. What may come as a surprise to you, however, is how few of our nation’s heroes understand the home loan benefit to which they are entitled.
Of our 21,369,602 military veterans, only 2.4 percent used their VA home loan guarantee benefit in 2015, the last year for which we could find statistics from the Department of Veterans Affairs. When pollsters with the VA asked them why they didn’t take advantage of the program to purchase a home, more than 33 percent of veterans said they had no idea they were entitled to a home loan guarantee. Most of these respondents were surviving spouses who had not remarried (yes, many are entitled to the benefit) and older veterans.
With that, it’s time to dive into the home loan guarantee – one of the best benefits offered to our military – active and retired.
The basics of the VA home loan guarantee
The U.S. Department of Veterans Affairs, like the Federal Housing Administration, doesn’t make loans but offers to repay a portion of them if veterans default. The VA guarantees that it will pay from 40 to 50 percent of the balance owed (depending on how much is owed).
The guarantee covers the following types of purchases:
- Single-family homes, manufactured homes/lots and condos, provided the condo is in a VA-approved community
- The funds to build a home
- The purchase and improvement of a home
- Update a home’s energy efficiency
Benefits of the VA home loan guarantee
The most obvious benefit of the VA home loan is that there is no down payment requirement. Only the USDA home loan guarantee also offers this advantage. But, there’s more to like about the program:
There is no monthly mortgage insurance (PMI or MIP in the case of FHA loans) required, despite the low upfront investment.
- Closing costs are limited.
- There is no prepayment penalty.
- If you choose to buy a new home, the builder is required to buy you a 1-year home warranty.
- VA loans often carry lower interest rates than conventional mortgages.
- Some VA-backed loans are assumable.
It’s complicated, there’s no getting around that. First, determine your eligibility:
The VA wants to see that you have what they call “suitable credit.” They don’t elaborate on what they consider “suitable,” but most assume that it’s what the lender requires.
- Do you make enough money to not only pay a mortgage payment but cover your monthly bills and other financial obligations as well?
- You must intend on living in the home.
- You have obtained a valid Certificate of Eligibility (COE). Learn more about the COE here.
VA-approved lenders typically use ACE, an online system, to help veterans obtain their COE. If not, the VA will supply you with one, so get this one figured out early. The ACE system is quick but, as you know, dealing directly with the VA can be time consuming.
Each VA-approved lender has its own underwriting guidelines, so shop among several to find the best for your circumstances. For more information on the program, visit the VA online. They also provide some valuable information here.
By the way, the VA sets the basic entitlement (when the service member or veteran is credit and income qualified) at $36,000 and lenders will typically loan up to four times that amount. The maximum loan limit in Dane County for 2017 is $424,100. Only a VA savvy lender can determine how much you’ll qualify for.
Lake and City Homes thanks you for your service.