Thanks to the passage of the GI Bill of Rights in 1944, with the aid of Franklin D. Roosevelt, and subsequent legislation designed to provide aid to veterans and service members, a form of the VA Loan Program was put into place and has turned today into a very popular way for veterans and service members to obtain a federally guaranteed home without a down payment.
While this doesn’t ensure that everyone who’s spent time in military service will have easy access to home loan financing, it is a great program for those who are able to meet its rules and requirements. These restrictions mainly pertain to eligibility, with veterans, active duty, guard or reserve, and military spouses seeking to partake in the program having to first apply for and obtain a Certificate of Eligibility through the Veterans Administration. Although this certificate does not guarantee loan approval, it allows those who are eligible to apply for a VA home loan. In order to be eligible for the program, veterans must have served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. The Veterans Affairs Department has a full list of the eligibility requirements, including those concerning the number of years in service.
The loans are made through private lenders, but guaranteed by VA for a maximum of 25 percent of a home loan amount up to a certain amount. Borrowers are able to borrow the reasonable value of the property or the purchase price, whichever is less, as well as the funding fee.
In addition to eligibility requirements, potential homeowners must meet occupancy requirements to ensure the homes will be used as a “primary residence.” Potential homeowners must prove they plan to use the residence they are purchasing within a “reasonable time,” which is typically two months following closing on the loan or when the house is finished for custom built properties. Although there are extensions available, delays of more than a year are typically not considered reasonable by the agency. However, the department does allow spouses to occupy the property in place of a borrower. There are also ongoing occupancy requirements that have the potential to impact those who travel frequently or spend long periods of time away from home as well as those who may be up for deployments and permanent change of station orders.
Despite the restrictions and requirements, these loans can provide veterans and service members trying to reach the part of the American dream that involves owning a home a great opportunity to purchase without a down payment and the need for private mortgage insurance, a condition of conventional mortgages.
Guest Post provided by Chris Birk, featured writer for the VA Loans Insider blog and author of The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits. Connect with Chris on Facebook at VA Loans Insider or on Google+.