VA Loans: Understanding the Benefit You’ve Earned

Posted by Jason Kauffman on September 7, 2022

If you are a veteran of the Armed Forces, you’ve probably been told about your ability to use the VA home loan benefit that you’ve earned for your service. But how much do you really know about this coveted benefit? It’s not uncommon for us to get veterans that don’t understand all the intricacies of their VA home loan benefit, so we figured putting an article together to explain it might be helpful.

A Little History

The VA home loan guaranty program was put into place in 1944 as a part of the original Servicemen’s Readjustment Act. The purpose behind the initial creation of the program was to assist post-war veterans in providing shelter to their families, or beginning a business or farming ventures. The notion being that the program would help offset the time spent away during their service in the Armed Forces and bring the Veteran closer to par with their nonveteran counterparts.

Unfortunately, the structure of the program at the time prevented it’s use by many eligible veterans due to various time constraints and other guideline caveats. The benefit was reworked in 1945 and subsequently in the years 1948-1950 to be more effective meeting the needs of a broader base of Veterans. The benefit has had changes over the past 70+ years, but the initial premise of helping Veterans secure housing holds true to this day.

Eligibility Requirements

Determining if a Veteran or active-duty service member is eligible to use their VA home loan benefit is the first step in the process of exploring your VA home loan possibilities. In general, the following are the requirements for eligibility:

  • The borrower served 90 consecutive days of active service during wartime.
  • The borrower served 181 days of active service during peacetime.
  • The borrower has 6 years of service in the National Guard or Reserves.
  • The borrower is the spouse of a service member who has died in the line of duty or as a result of a service-related disability.

The VA guidance on benefit eligibility is extensive and the list above is not all inclusive. It’s always best to reach out to your mortgage professional and have them order your certificate of eligibility (COE) in advance of going under contract on a home to ensure you have access to your benefit.

The VA Loan Structure

The beauty of the VA benefit comes down to the down payment requirements on a VA loan. In most cases (depending on purchase prince and eligibility) a Veteran can purchase a home with no down payment. If structured correctly with a credit from the seller or from the lender, a veteran can often get into a home with no money out of pocket.

The way that the VA does this is through guaranteeing the lender that their costs to foreclose will be reimbursed in the event that the Veteran defaults on the loan. The VA is able to pay for these losses through the VA guaranty, which is basically a big pool of money that every veteran pays into when they get a VA loan.

This big pool of money is funded on every VA loan with a cost called the VA funding fee. The funding fee is a percentage of the loan amount and can be paid up front or financed into the total loan amount. The funding fee percentage is based on a number of different factors including down payment, branch of service, purpose for the loan (purchase vs refinance), VA disability rating, and whether it is a first-time or consecutive use of the benefit.

An added benefit of VA Loans is that they do not have monthly mortgage insurance and VA rates tend to be very competitive.

All of these features of VA mortgages result in low down payment options for Veterans with associated monthly payments that tend to be more competitive than alternative options with FHA and Conventional loans.

Whether you are an active-duty servicemember or a Veteran, an experienced mortgage professional is going to understand the different pay/allowance categories and disability/retirement benefits that can make or break your ability to qualify for your dream home. Be sure to reach out to them early in the home buying process to ensure that your experience is a positive one.

For more information from the VA on eligibility: https://www.va.gov/housing-assistance/home-loans/eligibility/

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