There is another way for veterans of the armed forces to seek out loans whether they be conventional or jumbo loans. These loans are guaranteed by the United States Department of Veteran Affairs, also known as the VA. This alternative source of a loan may prove useful to those who have participated in the armed forces and some other qualifying parties.
What is A Veterans Affairs Loan?
In 1944 the United States Congress passed the Servicemen’s Readjustment Act, which enabled a loan guarantee program that allowed the Department of Veteran Affairs to issue home, farm, or business loans; in the interest of caring for soldiers who were returning from active duty. Over the years the Servicemen’s Readjustment Act was coupled with the Veterans Housing Act of 1970 and the Veterans Housing Benefits Improvement Act of 1978. These improvements increased the amount of benefits readily available as well as the number of qualifying factors.
Finally in 1992 the Veterans Home Loan Program Amendments expanded the base of the qualifications to include Reservists and members of the National Guard.
Who Qualifies for a Veteran Affairs Loan?
While the Department of Veteran Affairs does not require a minimum credit score from any of the individuals applying, most lenders will still desire a credit score of at least 620. Other qualifying details are:
- You must have served 90 consecutive days of active service during wartime
- You must have served 181 days of active service during peace time.
- Have more then six years of service in either the National Guard or in the Reserves
- You were the spouse of a service member who has died in the line of duty or as a direct result of a service-related disability
As a final caveat any veteran applying for a loan can not have been discharged from the armed forces under dishonorable conditions.
All individuals must possess one or more of the listed requirements and obtain a Certificate of Eligibility, also known as a COE, from the Department of Veteran Affairs. For interested parties the for to request to file for a Department of Veterans Affairs Certificate of Eligibility is VA Form 261880.
What Benefits Does a Veterans Affairs Loan Offer?
A Veterans Affairs Loan is quite different from other loans be they conforming or not. For instance if you qualify for a Veterans Affairs loan you may also be approved for said loan for no down payment, this was put into place to protect members of the armed forces as their constant deployment around and out of the country can prevent service members from establishing credit.
Many other lenders might require private mortgage insurance, also known as PMI, to guard against risk unless the down payment has been at least twenty percent. This is not true when it comes to a loan borrowed from the Veterans Affairs. With a loan using the VA the government assumes the risk that would normally be covered by the private mortgage insurance, which is another reason an honorable discharge is so important.
Another benefit about having a government backed loan with the Veteran Affairs is the lower interest rates. In a non-veteran loan situation interest is decided by both the amount of money being borrowed and the risk the lender is prepared to take in approving your loan. With the government shielding lenders from the risk lower than normal interest rates become readily available. Pair that with the ability for continuing active duty service members to count their basic housing allowance as a secondary source of income and a removal of the pre-payment penalties some lending companies will enforce and a Veterans Affair loan might just be what you need.
It is important to realize that with these benefits there are some added hoops top jump through. There is a one time fee to the Department of Veteran Affairs, which while generally lower then standard down payments the fee can be as high as 2.15 percent of the amount loaned, with the exception of veterans who receive disability compensation as that fee is waived.