Veteran home loans come in many shapes and sizes, but the one you should really concentrate on is the VA loan system. It can help veterans during various stages of their lives, whether you already own a home or are looking for a new home. The benefits of a VA loan guaranteed mortgage are substantial. Save yourself a lot of money, up front and over the course of your mortgage, by learning the basics of the VA loan system. The time you invest will be more than worth it.
There are other loans for veterans out there, and we will talk about those too.
Veteran Home Loans: Benefits of the VA System
The military VA home loan program was established as part of the GI Bill right after World War II. It saw its 75th birthday in 2019, and it is still one of the most popular benefits offered to eligible veterans. It is overseen by the U.S. Department of Veterans Affairs, and it has helped more than 25 million veterans and eligible service members since it began. It helped 1.2 million heroes in 2020 alone.
Before we jump into the benefits, it’s important to point out that the VA loan program doesn’t actually give you the loan. The loan, the mortgage and the money all come from either a private mortgage lender or a mortgage broker. The VA system insures the loan, guaranteeing for the lender so that they will get paid if you default. So, while it’s often referred to as the VA loan, it’s actually the VA loan guarantee.
What does that guarantee get you?
- You will have no down payment on your mortgage loan.
- You won’t need to buy private monthly mortgage insurance.
- You will get a low competitive interest rate.
- You will have a cap on your closing costs.
- The program does not have a minimum credit score requirement–though many lenders will have a number they want you to have.
- You do not have to be a first-time home buyer.
- It’s a lifetime benefit–you can reuse the benefit.
- VA home loans are assumable (which can be a big deal right now with interest rates rather high).
- There is no maximum loan amount, but the VA does limit its guarantee. Veterans can borrow up to $647,000 without a down payment in most of the country.
- The benefit can be extended to a surviving spouse or to families of soldiers killed in the line of duty.
- The VA does not have a maximum debt-to-income (DTI) ratio requirement, which is the comparison of your monthly income to the debts you have to pay each month. It does, however, have strong suggestions to private lenders about what to allow.
- The VA home loan benefit can be used for single-family homes (up to four units), condos, manufactured homes, new builds and home improvements like solar panels.
Of course, some of these benefits have some fine print that you should be aware of. The “no down payment” is true, but only if your mortgage loan comes in under a certain amount ($647,000 for example). It’s good to work with a mortgage specialist who knows what they are doing when it comes to the VA.
As a veteran, you may already have a home, and you may have already used the VA system to finance the home you live in right now. But did you know you can use the VA to help you refinance your mortgage, not just one, but in two different ways?
Refinance Your Veteran Home Loans Using the VA
After you’ve owned your home for a while, refinancing your mortgage may become a useful tool to help you in your financial life. The VA can help with that too.
The VA Interest Rate Reduction Refinance Loan is a refinance loan you can use the new loan to reduce the interest you pay on your mortgage. That typically becomes an option if interest rates are falling. Refinancing is a great idea because it can reduce your monthly payment in the short term, and your overall mortgage payments in the long term.
The VA IRRRL is known as a streamline refinance by the VA. It requires a lot less documentation, fewer requirements and less stress overall. It is also a fast refinance and can typically be closed in about 30 days.
The VA IRRRL is only open to those who already have VA-guaranteed loans.
VA Cash Out Refinance
The Cash Out Refinance lets you refinance your mortgage and turn the equity you’ve developed in the property into cash. That means if you’ve been paying into your mortgage for years, that equity can become cash in your pocket. You can use this cash to repair your home, renovate it, install energy efficient elements, pursue your education and take care of emergencies (for example, medical bills). The choice is yours.
Unlike the VA IRRRL, this loan is not streamlined and very much like a typical refinance with all the rules and documents.
The big advantage for the Cash Out is that it is open to veterans who have VA loan eligibility but may have missed it the first time out. That ability to convert conventional loans into a VA mortgage, and get cash back, makes this a very attractive option under the right circumstances (see list of benefits above).
VA Grants You Should Know About
In addition to VA purchase loans, the VA has a couple of grants that you should know about as a veteran. They aren’t exactly Veteran home loans, but they are designed to help disabled and aging veterans make changes to a home to make it more livable. Two of the grants have almost identical names, so it’s tough to tell them apart.
The Special Home Adaptation Grant is to help disabled vets who want to build or buy or change their existing home to make it more accessible. In this case either you or a family member can be the owner. You must have a service-related disability and the maximum for this grant is $22,000.
The Specially Adapted Housing Grant is very similar, but this is for the vet who owns their own home and plans to live in it for some time. You need to have a service-related disability, and only 120 of these grants are issued each year. The upper limit on them is $109,986.
A Home Improvements and Structural Alterations Grant will help vets make their existing home more accessible. This grant is not restricted to vets with service-related injuries–it’s open to all veterans. The lifetime limit on this grant is $6,800.
Other Options for Veteran Home Loans
There are two more federal government programs that are not military-specific, but they can help you find and buy a home if the circumstances are right. They are also worth a look.
FHA loans are insured by the Federal Housing Administration. With that insurance, the buyer only needs to put 3.5% down (conventional mortgages are much higher). Again, the government agency doesn’t give you the mortgage, but it does guarantee it so private lenders can reduce their requirements. The eligibility requirements are:
- A credit score of 620* or higher
- Proof of income (1-2 months of paystubs)
- W2 forms for one year
- An appraisal from an FHA-approved appraiser
- Current debt information (auto loans, credit cards, etc.)
- Acceptable debt-to-income ratio (DTI)
- The home must be your primary residence
*FHA loans are available to home buyers who have credit scores as low as 580, but they do require mortgage insurance.
Many retired military members are looking to live in rural areas or small towns. If that’s you, take a look at USDA loans. These loans, backed by the United States Department of Agriculture, offer:
- No down payment
- Reduced mortgage insurance
Rural, in this case, is defined by the government to include about 97% of the U.S. map, so check this mortgage program out. It can save you thousands of dollars, both at closing and with your monthly payment.
At Homes for Heroes, we want to thank all the community heroes we can find, but veterans hold a special place in our hearts. They have the best stories and they inspire us. If you’re a vet, let us help you find a new home, sell your existing home, or refinance your mortgage. We have the team that can help you every step of the way, and then we will thank you with a Hero Rewards check at the end of the process.