Home loans for vets: Here’s what you should know

If you or your spouse have served in the military or the National Guard, chances are you’re eligible for a VA loan guaranty from the federal government.

“VA loans are a low risk for lenders and a great benefit for veterans,” said Patrick Cunningham, vice president and partner at Home Savings and Trust Mortgage in Fairfax, Virginia.

The Department of Veterans Affairs reports that more than 631,000 loans for veterans were approved in 2015.

The VA loan guaranty program, part of the 1944 GI Bill of Rights, was designed to ease the transition of veterans into civilian life while also spurring the U.S. economy, said Louise Thaxton, branch manager of Fairway Independent Mortgage Corp. Who can use VA loan?

Many veterans pay more attention to their education and medical benefits and are unaware that they may qualify for this homeownership benefit, said Joseph J. Murin of NewDay USA, a VA mortgage lender based in Fulton, Maryland.

Members of the military are eligible for a VA loan guaranty after they have actively served for 90 days during wartime or 180 days during peacetime. Murin said members of the National Guard and reservists are eligible after six years or, if they have been called for active service during wartime, 90 days. Surviving spouses of someone who died during active duty or due to a service-related disability are also eligible.

Criteria for VA financing also includes meeting loan guidelines for credit and income eligibility.

While Thaxton said that typically with a VA loan a co-borrower’s income can be considered only if the borrowers are married, two veterans who aren’t married can get a VA loan together. Aveteran who wants to buy with a non-spouse, nonveteran co-borrower must make a down payment of at least 12.5 percent.

Loans for veterans are generally available for primary residences only.

Borrowers can finance 100 percent of their home purchase.

“Not only is there no down payment requirement, but eligible borrowers don’t pay mortgage insurance as they would with any FHA loan or with a conventional mortgage with a down payment of less than 20 percent,” Cunningham said.

Loans for veterans typically have interest rates comparable to the best conventional loan rates, he said.

“There’s no rate adjustment for a lower credit score, so for someone with a low score that could mean as much as a 1 percent difference on a conventional loan,” Cunningham said. “The funding fee for the program pays for a government guarantee to protect lenders in case of a default.”

Funding fees range from 1.25 percent to 2.4 percent for first-time VA loan borrowers.

“VA loans are underwritten specifically for veterans and rely on more than just a credit score,” Murin said. “We focus mostly on the disposable income of the borrowers since that’s the biggest indicator of whether someone will default.”

Avet can use the eligibility multiple times, Thaxton said.

You can even have more than one VA loan at a time, depending on how much of your eligibility you used the first time.

“The funding fee will be higher when you take out a second VA loan, sometimes as high as 3.3 percent,” Thaxton said.

“Most of our borrowers are refinancing a VA loan with a cash-out refinance to consolidate their debt,” Murin said. “Our older borrowers benefit from this opportunity to clean up their finances.”

But the 3.3 percent funding fee can be costprohibitive for veterans refinancing from an FHA or conventional loan into a VA loan, Cunningham said.

AVA loan expert can help you compare other loan options and decide whether the funding fee is costlier than paying mortgage insurance, Thaxton said.