As a military family you have access to a number of financial benefits. This includes VA loans for buying a home. However, before you move forward with any kind of mortgage application it is important to keep these five things in mind prior to using your VA loan benefit.
What Exactly is a VA Loan?
A VA loan is a mortgage that is offered by a private lender and backed by the Department of Veterans Affairs. Unlike other kinds of loans there is no limit to the amount you can borrow, although it does depend on your current finances and how much money you make. In many ways, such as the repayment process, a VA loan works exactly the same as other mortgages. However, the main benefit is it comes with a lower interest rate than what you receive from a traditional bank.
One point of interest to keep in mind with regards to a VA loan is the loan is only for your primary residence. This means if you’re interested in purchasing a second home, an investment property, or a vacation house, you will not be able to use a VA loan for the mortgage. The purpose of the VA loan is to make purchasing a primary residence easier for military members and their families. So if you are interested in purchasing a second home you will need to take out a traditional mortgage.
When considering a VA loan the Department of Veterans Affairs guarantees a part of your mortgage through an entitlement. There are two different kinds of entitlements offered to veterans, which are known as either basic entitlement or bonus entitlement. These are set in place to help provide additional protection to you and your family should you ever default.
For example, the basic entitlement is valued at 25 percent of the total mortgage or $36,000 (whichever is the lesser of the two). Typically, when you receive your VA loan you will receive four times the given amount. The best way to think of a VA entitlement is you’re receiving a 25 percent down payment. The bonus entitlement comes in when the value of a home increases. If the value of a home pushes past $144,000 (which is four times the $36,000 basic entitlement) you’ll receive the bonus entitlement.
As of the beginning of 2019 the average sales price for a home throughout the united states sat at $315,000, which is more than double the $144,000 threshold. Due to this, you’ll likely receive the bonus entitlement. The bonus entitlement amount is determined by the Federal Housing Finance Agency (FHFA) based on the area where you live.
Requirements for VA Loan Eligibility
There are a number of qualifiers for receiving a VA loan. If you served at least 90 consecutive days of active duty during wartime. If you served at least 181 days of active duty during peacetime. If you have been an active member of the National Guard or Reserves for at least six years. And if you are married to a service member who died in the line of duty or died from a result of their service (such as death due to an injury they sustained while on active duty) than you May qualify for the VA loan.
It is important to keep in mind that while you may qualify for a VA loan, you will still need to meet lender requirements, which includes:
- a specific credit score
- debt-to-income ratio
- income verification
- and a few others as well
A VA loan provides you with an excellent opportunity for saving money on a home mortgage. However, before you go out and apply for your VA loan it is important to keep these different points of interest in mind so you know what to expect and whether you’ll qualify for the VA loan.