The VA Home Loan was established, and is maintained, by the Department of Veterans Affairs for use by veterans, surviving spouses, as well as active duty, guard, and reserve service members. The primary purpose of this loan is to allow these individuals to become the primary owner of a personal residence.
The VA Home Loan itself is a type of mortgage loan, though its rates are much lower than traditional mortgage loans. You’ll see why in a little bit. With the VA loan program, the borrower does not make any down payment; instead, the VA makes a deal with the lender that if the borrower defaults, then the VA will cover a quarter or half of the loan, based upon their prior agreement with the lender.
Lenders feel protected because they are convinced that, rather than having to go after someone with debt collectors and heavy fees, they have a guarantee from the government of partial recovery. (This is why the interest charged on these loans is very low as compared to other mortgage loans.)
A veteran (or other user of the VA Home Loan) can save thousands of dollars every year just by using the VA Home Loan over most any other mortgage loan.
How It Works
To obtain this loan, a person does not have to contact the VA because the VA does not grant loans directly; the person must contact the lenders and banks that approve the VA loans. Be advised that the duration of payment for the VA Home Loan is between 15 to 30 months. Now, with all that said, let’s get on to basic eligibility, shall we?
Though members of the military who are still serving this country are eligible for the VA Home Loan, I will be focusing primarily on the use of the loan by veterans and / or their surviving spouses. If you need more information pertaining to service member eligibility, you can find it at the following web links:
One of the most basic steps the VA goes through in order to establish whether or not a veteran or surviving spouse is eligible for the VA Home Loan is determining the character of discharge of the veteran. Applications which involve an ‘Other-than-Honorable’ discharge will require more development time by the VA in order to establish that the veteran did not separate as a result of a dishonorable discharge. This would bar the veteran from utilizing this particular VA benefit, as well as the majority of other VA benefits, including VA healthcare.
After this key step is taken, periods of service, specifically whether the veteran was on active duty during wartime or peacetime, as well as how long they served, are then tackled. Below is the exact verbiage from the VA’s website on VA Home Loan eligibility for service periods.
Wartime – Service During:
- WWII: 9/16/1940 to 7/25/1947
- Korean: 6/27/1950 to 1/31/1955
- Vietnam: 8/5/1964 to 5/7/1975
You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service connected disability.
Peacetime – Service during periods:
- 7/26/1947 to 6/26/1950
- 2/1/1955 to 8/4/1964
- 5/8/1975 to 9/7/1980 (Enlisted)
- 5/8/1975 to 10/16/1981 (Officer)
You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service connected disability.
Service after 9/7/1980 (enlisted) or 10/16/1981 (officer)
If you were separated from service which began after these dates, you must have:
- Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or
- Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a compensable service-connected disability;
- Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.
Gulf War – Service during period 8/2/1990 to date yet to be determined
If you served on active duty during the Gulf War, you must have:
- Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or
- Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
- Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.
Though it is sometimes complicated to determine what category you or your veteran fall in to, a quick call to your Veterans Service Representative or Officer should be able to help clarify things for you!
For surviving spouses of veterans who are determined to be eligible, the VA has this to say:
You may also be determined eligible if you:
- Are an unremarried spouse of a veteran who died while in service or from a service connected disability
Note: A surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003 that are received after December 15, 2004.
The key point here is that the veteran must not have been discharged dishonorably, and must have died either while in service, or from a service connected disability. Next, we’ll be moving on to how one applies for the VA Home Loan.
How to Apply
The very first thing that is needed in order to apply is a Certificate of Eligibility, or CoE. As an eligible veteran, you can get a CoE in one of three easy ways:
- Apply through your lender: Many vendors have access to a system called ‘Web LGY’. This is an Internet based application that can establish eligibility and issue an online CoE in a matter of seconds. Be careful, though, because not all cases can be processed through Web LGY – only those for which VA has sufficient data in our records. Despite this, veterans are still encouraged to ask their lenders about this method of obtaining a certificate, as it is definitely the easiest and quickest way of doing so.
- Apply online: If you’re unable to get the certificate through your lender, or if you’re not yet looking at any specific lenders, the next best option is to apply online. Go to the eBenefits portal (http://www.ebenefits.va.gov) and click on the My eBenefits tab towards the top, on the left side. It will open a screen with several benefit areas. On the bottom right of the screen is the Housing tab. It’s important to note that you will need login credentials to request a CoE through eBenefits. If you have them, enter your Username and Password. If you do not have a login and password for eBenefits yet, you can simply click on the “Request/Activate a DoD Self-Service Logon” link which is shown below the area where you logon.
- Apply via mail: The third and most time intensive method for getting your CoE is through the mail. Veterans will use VA Form 26-1880 (Request for a Certificate of Eligibility) for this. The form is mailed in to the Winston-Salem Eligibility Center, the address for which is provided on the VA Form itself. If you are applying via mail, it is highly recommended that you submit a copy of your DD-214 to establish proof of service, unless you already have done so through a Compensation and Pension claim (VA Form 21-526), or other VA claim. (Note: The VA is required to have a copy of the DD-214 which shows the character of service (item 24) and the narrative reason for separation (item 28).
As an eligible surviving spouse, you can receive a CoE only by submitting an application through the mail. You must complete the VA Form 26-1817 (Request for Determination of Loan Guaranty Eligibility – Unmarried Surviving Spouses) and mail it to the Winston-Salem Eligibility Center. As a surviving spouse, if you are already in receipt of Dependency and Indemnity Compensation (DIC) Benefits, make sure to include a copy of your award letter with your application. If you’re not in receipt of DIC, but are still eligible for the VA Home Loan, submit a copy of the following items:
- A copy of the veteran’s DD-214 (Note: The VA is required to have a copy of the DD-214 which shows the character of service (item 24) and the narrative reason for separation (item 28).
- A copy of the veteran’s death certificate
- A copy of your marriage certificate
Make sure to put the veteran’s social security number at the top of all submitted documents. Finally, you should add a simple signed statement saying that you would like to apply for DIC. This is important because if you qualify for the home loan benefit, you probably qualify for monthly payments under DIC.
The VA loan doesn’t have to be used just to purchase a new home; it can also be used for various other reasons. For example, a 100 percent refinancing option is available, meaning that this loan can be used to expand or improve an existing loan, or it can be used to purchase other mortgages. (However, people cannot buy investment properties through this loan). The amount of money that can be borrowed on this loan is up to $417,000, but in some states, this amount may vary. In order to determine if this limit of $417,000 applies to your specific location, the VA has put up an electronic list of high-cost counties, organized by state, for use by the general populace. It can be found at the following link:
(Limits shown for the areas in this PDF apply to all loans closed January 1st, 2011 through September 30th, 2011)
If you’ve already obtained one VA Home Loan, there is a good chance that you’re still eligible to receive another one. Your eligibility can be restored if:
- You have paid off (in full) your prior VA loan, and
- Disposed of the property (meaning sold / transferred the title) *1
(*1: On a one-time only basis, you can have your eligibility restored if your prior VA loan has been paid in full but you still own the property.)
In order to restore eligibility, the veteran must send a completed VA Form 26-1880 (Request for a Certificate of Eligibility) to the Winston-Salem Eligibility Center. In order to make sure your request for restoration isn’t delayed, try to include evidence that you’ve already paid back the previous loan in full. This can be shown through a statement from your former lender, or with a copy of the HUD-1 settlement statement completed in connection with a sale of the property or refinancing of the prior loan. The VA also maintains an excellent Q&A FAQ on the VA Home Loan; it provides common scenarios with regards to restoring eligibility and the paying off of the loan. Listed below are some of the more crucial questions that are answered on their website.
Q: I sold the property I obtained with my prior VA loan on an assumption. Can I get my eligibility restored to use for a new loan?
A: In this case the veteran’s eligibility can be restored only if the qualified assumer is also an eligible veteran who is willing to substitute his or her available eligibility for that of the original veteran. Otherwise, the original veteran cannot have eligibility restored until the assumer has paid off the VA loan.
Q: My prior VA loan was assumed, the assumer defaulted on the loan, and VA paid a claim to the lender. VA said it wasn’t my fault and waived the debt. Now I need a new VA loan but I am told that my used eligibility cannot be restored. Why?
Q: My prior loan was foreclosed on, or I gave a deed in lieu of foreclosure, or the VA paid a compromise (partial) claim. Although I was released from liability on the loan and/or the debt was waived, I am told that I cannot have my used eligibility restored. Why?
A: In either case, although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.
Q: Only a portion of my eligibility is available at this time because my prior loan has not been paid in full even though I don’t own the property anymore. Can I still obtain a VA guaranteed home loan?
A: Yes, depending on the circumstances. If a veteran has already used a portion of his or her eligibility and the used portion cannot yet be restored, any partial remaining eligibility would be available for use. The veteran would have to discuss with a lender whether the remaining balance would be sufficient for the loan amount sought and whether any down payment would be required.
If you have specific questions about the VA home (not pertaining to your specific eligibility) that have not been answered here, you can email your VA Regional Loan Center. Just follow the link below, click on your state, and a window will open with the email address provided.
I sincerely hope that this article was useful to you, and best of luck with your VA Home Loan endeavors!
National Service Officer